Beyond Stock Splits: 3 Top Growth Stocks to Buy Now

Stock splits have been getting a lot of attention lately, with several notable companies initiating actions to increase their share counts significantly without changing their valuations. For instance, Amazon finalized a 20-for-1 stock split on June 6 while Shopify finalized a 10-for-1 split on June 29. Alphabet will initiate its 20-for-1 stock split on July 15.

What investors need to remember is that stock splits do not intrinsically change the business. A split only breaks one share into a higher multiple with the split shares together equaling in value the formerly single share. The company's market cap and other financial metrics are adjusted to remain the same or are unaffected.

This suggests that looking at a company's fundamentals is going to be a lot more useful when making investment decisions about it. It's the fundamentals of these three stocks -- MercadoLibre (MELI -1.98%), Datadog (DDOG 1.19%), and Doximity (DOCS -1.47%). -- that make them shine. Forget stock splits and pay attention to the potential these growth stocks offer long-term investors.

1. MercadoLibre

E-commerce and digital payments are now commonplace in the U.S., but in Latin America, their adoption is still relatively low. According to Fidelity International, there was just 9% e-commerce penetration in Latin America in 2021. But that figure is expected to nearly double by 2025, setting MercadoLibre up to thrive over the long term. 

MercadoLibre is a dominant player in the e-commerce market in Latin America with over 30% share, according to Bloomberg. It's also a leader in the digital payments and logistics industries. Mercado Pago, its digital payments arm, had almost 36 million active users who transacted a total of $25.3 billion in the first quarter of 2022. Its logistics arm was also running smoothly in Q1: It delivered 254 million products, 54% of those being either same-day or next-day deliveries. 

This prominence allowed total revenue to soar 63% year over year to $2.25 billion, while net income reached $65 million in Q1. Considering the adoption of digital trends like e-commerce, it's not unreasonable to think MercadoLibre could continue to see heightened growth as it capitalizes on this opportunity. Additionally, MercadoLibre only had 12.4% of the Latin American population as users in Q1, leaving plenty of room for MercadoLibre to expand over the long term.

At 4.2 times sales, MercadoLibre stock is trading at its lowest valuation since 2009, which makes shares look appealing today. Considering its scale in this fast-growing industry, you might want to buy some shares of MercadoLibre. 

2. Datadog

Datadog stock is not as cheap as MercadoLibre, but at 26 times sales, it is trading at its lowest valuation since early 2020. However, this company still looks appealing given its potential. 

Datadog dominates the cloud performance observability market, according to Gartner's Magic Quadrant, allowing businesses to monitor cloud infrastructure performance and security. It also has other tools that ensure cloud applications are satisfying consumers, and this wide-reaching suite of over 26 tools is likely why Datadog is the primary player.

As the top dog, the company has seen immense expansion. Datadog's revenue jumped 83% year over year in Q1 to $363 million, driven by the 2,250 customers spending over $100,000 annually. 

The main risk for Datadog is competitive pressure from companies like Dynatrace. If it stops bringing new products and upgrades to consumers, Datadog could fall by the wayside. However, the company has a history of innovation, and with $336 million in trailing-12-month free cash flow, it has the available funds to maintain this trend. That is why this top dog looks so appealing right now.

3. Doximity

Doximity has a networking platform that allows healthcare professionals to communicate with other professionals or patients, manage their careers, and learn about current and upcoming medical research and practices. Importantly, Doximity's scale is second to none: 80% of U.S. physicians use Doximity.

This has led to incredible growth for the company. In its 2022 fiscal year (ended March 31, 2022) revenue soared 66% year over year to $343.5 million. The company is expecting another 33% year-over-year increase in its 2023 fiscal year.

A potential concern is Doximity's saturation. After all, how much more can the company mature if it already has 80% of U.S. physicians using it? There's more potential, however, than meets the eye. Doximity has 90% of graduating medical students using the platform, but there are always new graduates coming into the profession each year to market to as well. Second, the company makes money primarily from advertising by pharmaceutical manufacturers and healthcare companies. On this front, Doximity believes it has less than 5% of marketing budgets, leaving plenty of room to keep increasing its top line.

Doximity has a strong grip on the space, and its network effects could keep it that way for a long time. Additionally, the company generated $155 million in net income and $121 million in free cash flow in fiscal 2022. This cash could allow it to invest in maintaining its leadership position. 

Shares are valued highly at 54 times earnings, but this is understandable given the company's prominent position in the industry and its profitability. They might be expensive, but shares look worthy of buying today.