2 Top Growth Stocks to Buy Right Now and Hold for the Long Term

It's been a tough year for growth stocks. Rising interest rates and a shift in consumer spending have thrown cold water on a number of high-growth names. At the same time, valuations broadly have come down and businesses' growth rates have slowed. 

However, that doesn't mean investors should give up on growth stocks. Market sentiment should eventually swing back in their favor, and there are a number of growth names that look compelling even in the current market environment. Two in particular that look to me like long-term winners are Perion Network (PERI -1.77%) and GitLab (GTLB -2.21%).

1. Perion Network

Perion is a small-cap ad tech company that connects ad buyers and sellers across search, video, and display ads through its intelligent hub. Its technology also gives its brand partners value-added advertising tactics such as QR codes that can be scanned into a "connected cart," allowing people to instantly purchase products they see on TV, and ads inside a live event so they aren't disruptive in the way traditional TV advertising is.

At a time when profits are at a premium, Perion is a standout among growth stocks. In the second quarter, its revenue rose 34% year over year to $146.7 million, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) doubled to $28.5 million. The company was also profitable on a GAAP basis, posting $19.5 million in net income, up 175% from the year before, or $0.41 per share. With adjustments, earnings reached $0.51 per share.

Perion continues to innovate. Last fall, it introduced a new cookie-less targeting solution it calls SORT. It's currently giving away the technology free to its customers in order to strengthen those relationships and increase SORT's adoption. The company has also grown both organically and through acquisitions, giving it a wide range of opportunities for expansion.

Despite its impressive track record of growth and profitability, Perion stock has been mostly ignored by investors, and now trades at a price-to-earnings ratio of just 15. As it tackles a giant opportunity in digital advertising and connected TV, the company has a promising growth path ahead of it, making the stock look like a solid choice, especially at its current price.

2. GitLab

After going public last October, GitLab has mostly seen its stock decline amid the broader market's sell-off.

GitLab provides a "DevOps" platform that helps its customers run software faster and more efficiently. It mostly competes with in-house solutions, and as a single platform that can replace a number of individual point solutions, the platform presents an easy way to add value for its customers. Microsoft's GitHub is its biggest direct competitor.

GitLab has put up impressive growth throughout its history, and has continued to do so even during the current challenging macroeconomic environment. In its fiscal 2023 second quarter, which ended July 31, revenue increased 74% year over year to $101 million, beating estimates, and its adjusted net loss narrowed, a sign that the company is taking steps toward profitability.

GitLab's adjusted gross margin was 89%, showing the vast majority of its revenue goes to overhead costs like sales and marketing and R&D. That gross margin should help the company turn profitable as it scales. Additionally, its dollar-based net retention rate has consistently been above 130%, meaning that on average, its established customers are increasing their spending by at least 30% annually. 

In an interview with The Motley Fool, CFO Brian Robins said GitLab was actually seeing its sales cycle shrink at a time when many of its cloud peers are seeing their sales cycles lengthen. That's a sign that GitLab's product, which helps companies save money and improve efficiency, is in high demand regardless of the macroeconomic conditions. GitLab's guidance was strong, too. Management forecast 57% to 59% revenue growth in the current quarter.

The company operates in a highly fragmented market that it estimates is worth $40 billion, but it owns just 1% of that market currently. That should give it a long growth path, and it's growing as fast as it can hire.

Admittedly, the stock is expensive at a price-to-sales ratio of around 20 based on this year's expected revenue. But with sales growth near 80% and a large addressable market to penetrate, GitLab has a lot of upside potential over the long term.

Correction: The original version of this report misstated GitLab management's revenue growth forecast for the current quarter.