Many growth stocks skyrocketed to all-time highs last year as stay-at-home trends during the pandemic, stimulus checks, and the rise of "meme" investing cracked open the gates for a stampede of bulls. But over the past six months, many of those highfliers crashed as inflation, rising interest rates, and other macro challenges drove investors toward safer assets.
However, prematurely selling all of your growth stocks can also cause you to miss out on some massive multibagger gains over the next few years. So instead of focusing on which stocks to dump, investors should keep an eye on the promising ones to buy as the market tumbles.
Today, let's take a look at four beaten-down growth stocks which could rebound this year and generate much bigger gains over the long term: CrowdStrike (CRWD 0.02%), Twilio (TWLO -2.31%), and ServiceNow (NOW -4.93%).
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1. CrowdStrike
CrowdStrike provides endpoint security services with a cloud-native platform called Falcon. Unlike traditional cybersecurity services, Falcon doesn't require any on-site appliances -- which are expensive, require ongoing maintenance, and are difficult to scale as an organization grows.
CrowdStrike's cloud-only approach is winning over a lot of customers. Between fiscal 2019 and fiscal 2022, which ended this January, its total number of subscription customers soared from 2,516 to 16,325, which boosted its annual revenue from $250 million to $1.45 billion.
Its dollar-based net retention rates have remained above 120% ever since its IPO in 2019, and 57% of its customers were using five or more modules at the end of fiscal 2022 -- compared to just 47% a year earlier.
CrowdStrike expects its annual recurring revenue (ARR) to increase at a compound annual growth rate (CAGR) of at least 31% over the next four years and exceed $5 billion by fiscal 2026. It also expects the total addressable market (TAM) for all of its services to grow from $58 billion in calendar 2022 to $126 billion by calendar 2025.
Simply put, CrowdStrike still has a long runway for growth. It still isn't cheap at 15 times this year's sales, but it could still be a great long-term buy at these levels if it achieves its goals.
2. Twilio
Twilio's cloud-based communications platform handles text messages, voice calls, videos, and authentication features for mobile apps. Developers can simply outsource those features to Twilio's platform with a few lines of code instead of painstakingly building them from scratch.
Twilio served just over 28,000 active customers in early 2016, but that number had ballooned to 268,000 in the first quarter of 2022. That expansion was driven by both its organic growth and acquisitions. Its annual revenue surged from $277 million in 2016 to $2.8 billion in 2021.
It expects its organic revenue to grow by at least 30% annually through 2024, and to achieve profitability on a non-generally accepted accounting principles (non-GAAP) basis in 2023.
That's a promising outlook for a stock that trades at just five times this year's sales. Twilio faces some near-term concerns about its gross margins, which were squeezed by higher fees at wireless carriers over the past year, but it will likely keep expanding over the next few years as more mobile app developers adopt its communication services.
3. ServiceNow
ServiceNow's cloud-based platform streamlines digital workflows for businesses. Between 2016 and 2021, the company's annual revenue soared from $1.2 billion to $5.8 billion as its total number of enterprise customers more than doubled from 3,600 to more than 7,400.
ServiceNow's renewal rate has hovered just below 100% over the past several years. It also turned profitable on a GAAP basis in 2019 and stayed in the black in both 2020 and 2021.
ServiceNow expanded its ecosystem with a long list of acquisitions, and the shift toward remote and hybrid work -- which actually started long before the pandemic -- generated long-term tailwinds for its business. It expects to generate more than $15 billion in annual revenue by 2026 -- which would represent a CAGR of more than 20% over the next five years.
ServiceNow's stock isn't cheap at 65 times forward earnings and 11 times this year's sales, but its consistent growth, stable profits, and resilience during previous economic downturns all make it a top growth stock to accumulate during a market crash.
