While fast-growing stocks used to be all the rage, they are now out of style on Wall Street. This fallout makes it the perfect time to pick up these stocks for a cheaper valuation. Moreover, their already low valuations will become cheaper each quarter because they are growing so quickly.
Three fast-growers I've got on my radar are Snowflake (SNOW 1.79%), Datadog (DDOG -1.02%), and dLocal (DLO -0.41%). This trio has impressive growth rates and significant market opportunities ahead. Here's why you should also have them on your radar as well.
Snowflake's software is entirely focused on the data cloud. With its offering, customers can store massive amounts of data (structured or unstructured) and utilize that data to feed models and facilitate machine learning. The pay-as-you-go model makes Snowflake's product enticing to customers, which allows companies to tailor their usage.
During its first quarter (ended April 30), Snowflake turned in an impressive 84% year-over-year product revenue growth. Even more impressive was how much existing customers embraced their products, spending $174 for every $100 they spent last year.
While not profitable from a net income basis, Snowflake is free cash flow positive and turned in an impressive 41% margin for the quarter.
With solid growth and free cash flow positivity, Snowflake makes a great pick to purchase, down more than 60% from its high. Throw in Snowflake's $90 billion market opportunity, and it solidifies its investment case.
You can use Snowflake's tools to feed models and make business decisions. But who will ensure all this data is feeding other software properly? That's where Datadog comes in. Its cloud monitoring software allows IT teams to assess how all of its products are functioning and quickly fix problems. It's also getting into cybersecurity to keep all of these data streams safe and secure.
As businesses migrate to the cloud, Datadog's offering will become more attractive. This sentiment is reflected by its revenue growth, which increased 83% year over year during Q1 (ended March 31). Just like Snowflake, Datadog is free-cash-flow positive and posted a 36% margin.
However, unlike Snowflake, Datadog is marginally profitable, turning in $0.03 of earnings per share last quarter. Datadog's solution is just getting started as it only has 2,250 customers spending $100,000 annually with it. As for the market opportunity, Gartner estimates this space could be worth $53 billion by 2025.
Datadog is growing quickly, and with the rapid transition to the cloud, it won't slow down anytime soon.
While the first two companies on this list are growing fast, dLocal is growing even faster and is more profitable. Did that get your attention? It should.
dLocal specializes in emerging market payments, allowing e-commerce giants like Amazon, Nike, and Booking.com to sell in areas like Bangladesh, Tanzania, and Ecuador. It does this with two methods: payins and payouts.
Payins allow customers to use the localized payment method they are used to, rather than those typically used in more developed areas. Payouts allow retailers to team up with localized sellers and then reimburse them quickly and efficiently as sales are made.
It would be expensive and difficult for each company to develop its own emerging market solution, so going to one source is the ideal choice for most retailers. This attraction is what is driving dLocal's absurd growth rates.
In Q1, dLocal's revenue rose 117% year over year, and its customers spent $190 for every $100 they spent last year. While not revealing names, dLocal said it onboarded more than 10 "significant merchants" onto its platform during Q1.
But that's not the most impressive metric. dLocal's profit margin was 30% for the quarter, making it as profitable as many fully developed businesses. Because dLocal is integrated into many of the largest retailers, competitors will find it hard to oust. This first-mover advantage will give dLocal an edge over many competitors or make it an attractive company to acquire.
Snowflake, Datadog, and dLocal are all well off their highs and have the market opportunity to fuel rapid growth for many years. I'm a buyer of these three, and anyone looking for extreme growth in their portfolio (which often comes with extreme volatility) should also check them out.