Growth-heavy portfolios have taken a hit recently. Rampant inflation and rising interest rates have caused many investors to rethink their positions in richly valued growth stocks. But in certain cases, some of Wall Street's professionals believe the selling has gone too far.
JMP Securities analyst Devin Ryan has a price target of $394 on Coinbase Global (COIN 7.66%), implying 187% upside from its current share price. Similarly, Oppenheimer analyst Ittai Kidron has a price target of $150 per share on Elastic (ESTC 1.62%), implying 81% upside. Given the conviction shown by both analysts, let's take a closer look at these growth stocks.
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1. Coinbase Global
Coinbase is a gateway to the cryptoeconomy. The company offers a range of products and services to retail investors and financial institutions, helping them trade, spend, store, and stake crypto assets. Coinbase also provides infrastructure services to developers and blockchain analytics solutions to law enforcement and other clients.
As the largest U.S. cryptocurrency exchange, Coinbase benefits from significant scale. In fact, as of Dec. 31, 2021, its platform held a market-leading 11.5% of all crypto assets, signifying its brand authority. Perhaps more importantly, Coinbase has never lost customer funds due to a security breach, which has helped it earn the trust of traders. That competitive edge led to an impressive financial performance last year. Monthly transacting users jumped 307% to 11.4 million, revenue soared 514% to $7.8 billion, and profits skyrocketed 936% to $14.50 per diluted share.
Presently, the collective value of all crypto assets sits at $2 trillion. That's an impressive sum, especially because the crypto market didn't even exist 15 years ago. But it's still a fraction of the $120 trillion global equities market. If cryptocurrency is the disruptive force that many believe it to be, the market could soar in the long run, and Coinbase would be a big beneficiary.
Currently, the stock trades at 10.6 times earnings -- far cheaper than the broader S&P 500's valuation of 24 times earnings. With that in mind, I wouldn't be shocked to see the price hit $394 per share in the next 12 months, especially if the company continues to deliver monster financial results. But for crypto bulls, Coinbase is best viewed as a long-term investment.
2. Elastic
Elastic is a search company. Its platform, known as the Elastic Stack, is a suite of software that makes it possible to ingest, analyze, and visualize data from any source. Developers can use those tools to build custom solutions, but Elastic also provides three pre-built applications: Enterprise Search, Observability, and Security.
Enterprise Search is an internal search engine that allows employees to sift through corporate resources, while also enabling developers to embed search functionality in websites and mobile apps. The Observability and Security applications extend the utility of the Elastic Stack to infrastructure monitoring and cybersecurity, helping clients identify performance issues and prevent threats across their IT ecosystems.
Elastic's powerful analytics engine and freemium pricing model have generated strong demand. In fact, Elastic ranks as the most popular enterprise search engine by a wide margin, easily outpacing rivals like Splunk, according to DB-Engines. That has translated into strong financial results. Over the past year, Elastic grew its customer base 30% to 17,900, and the average customer spent nearly 30% more. In turn, revenue rose 41% to $801 million, and the company generated positive cash from operations of $7 million. As a caveat, cash from operations was down from $18 million in the prior year, due primarily to a widening net loss.
Going forward, Elastic undoubtedly faces tough competition from observability providers like Datadog and cybersecurity companies like CrowdStrike. But those are big industries. In fact, management puts its market opportunity at $78 billion, meaning there is plenty of room for multiple winners. Additionally, Elastic can lean on its leadership position in enterprise search to land and expand its relationship with customers.
From that perspective, long-term shareholders have reason to be optimistic, and with the stock trading at 9.5 times sales -- far cheaper than its three-year average of 17.5 time sales -- now looks like a good time to buy. That being said, a near-term price target of $150 may be a little too optimistic.
