While most hypergrowth stocks' share prices have struggled over the last year, it is vital to continue buying and dollar-cost averaging in these trying times if possible. It may be hard to stomach adding to a high-flying stock already down 40% or more from its 52-week highs, but these are the depressed prices that allow us to buy tomorrow's great businesses at fair valuations.
With that said, let's look at three hypergrowth stocks that are trading down over 40% from their recent highs -- CrowdStrike (CRWD -1.91%), Datadog (DDOG -3.15%), and Bill.com (BILL -3.38%) -- and see why they are worth buying in 2022.
1. CrowdStrike
With analysts from Statista projecting the cybersecurity industry to grow by 10% annually over the next five years, market leader CrowdStrike and its endpoint protection platform look poised to deliver prolonged hypergrowth. Increasing revenue and free cash flow by 61% and 34% in the first quarter, CrowdStrike showed the rare combination of high-speed growth and robust cash generation.
Best yet for investors, despite firing on all cylinders, the company's share prices are down over 40% from their recent highs in late 2021.
Operating through its cloud-native Falcon platform, CrowdStrike offers over 20 modules that protect various business needs, including corporate workload security, threat intelligence services, identity and data protection, and IT operations management.
Thanks to this widespread offering, most of its customers use multiple modules -- giving it a dollar-based net retention rate (DBNR) above 120% for 16 consecutive quarters. DBNR is a fantastic way to gauge growth within a company's existing base of customers from one year to the next (including customers lost to churn), with a figure above 100% showing expansion -- making CrowdStrike's consistently high marks tremendous.
Further demonstrating this impressive upselling, during the Q1 earnings call, management explained that since over 70% of its customers now use four or more modules, it would be replacing the metric with seven or more modules -- which was at 19%.
Due to this ability to expand its sales from current customers -- which include over 250 of the Fortune 500 -- and the secular tailwinds provided by the cybersecurity sector, CrowdStrike's hypergrowth looks poised to continue. Despite trading at 23 times sales, the company's broad customer base and critical importance to these businesses make it an outstanding stock to buy in 2022.
2. Datadog
Through its original objective to break down technology silos, Datadog aims to make walled-off programs, software, and data deployable everywhere and to everyone through its unified platform. Datadog's suite of offerings now consists of 14 products, providing monitoring and security to businesses with increasingly complex and growing cloud operations and technologies.
With the company's customer base growing from around 5,000 clients in 2017 to nearly 20,000 at the end of Q1 2022, Datadog's revenue has increased by 10 times over the same period.
For Q1 2022, Datadog grew revenue by 83% year over year while nearly tripling its free cash flow generated over the same time. Leading this charge, the number of customers spending more than $100,000 in annual recurring revenue (ARR) with the company grew from around 1,400 to over 2,200 in the last year, demonstrating quickly increasing usage among its current customers.
Thanks to these large customers and their expansion, Datadog has posted 19 consecutive quarters of a DBNR rate above 130% -- even outpacing CrowdStrike's incredible numbers.
Following recent partnerships with Amazon and Microsoft to help customers migrate their operations onto the hyperscalers' respective AWS and Azure clouds, Datadog looks to become the market leader in the observability space. With Gartner expecting this observability industry to grow from $38 billion today to $53 billion in 2025, Datadog looks like a strong candidate to continue its hypergrowth far into the future.
3. Bill.com
On a mission to "make it simple to connect and do business," Bill.com aims to bring accounts receivable and accounts payable into the digital age for entrepreneurs and small and mid-sized businesses (SMBs). Through its financial operations platform, Bill.com generates revenue primarily from usage-based transaction fees and subscriptions to use its platform.
Including its 2021 acquisitions of corporate card spending specialist Divvy and mobile-first accounts receivable company Invoice2go, Bill.com posted 179% revenue growth year over year for the third quarter of 2022.
As impressive as this growth looks, the market sent its stock down over 60% from its 52-week highs as it weighs the $3 billion spent between the two acquisitions and Bill.com's widening net losses.
BILL Net Income (TTM) data by YCharts
However, these accelerating losses are primarily a product of integrating these significant acquisitions, which already amount to nearly 40% of Bill.com's total revenue.
Rounding out our trio of high DBNRs, Bill.com also has a good tally of 124% -- which pairs beautifully with its mere five-quarter payback period needed for gross profits earned to surpass the cost of acquiring a new customer. So while it will take years for Bill.com to integrate its acquisitions and reach its full margin potential, its massive growth from recurring subscription and transaction fees make it a promising stock to own for the long haul.
