The stock market hasn't been enjoyable for some time, especially for technology investors, where 50% declines (or more) have become common among individual stocks. The storm of rising interest rates has arrived; while the metaphorical tide is lowering all ships, some companies could sink if they aren't profitable or well funded.
Fortunately, there will also be some tremendous winners -- stocks that survive the storm and eventually climb to new highs over time. Here are some stocks of rapidly growing businesses with the financial chops to come out of this bear market stronger than ever.
1. A cutting-edge cybersecurity stock
Cybersecurity company SentinelOne (S 0.44%) went public in the summer of 2021 near the peak of the now-defunct bull market. The stock has lost roughly two-thirds of its value just over a year later. The stock's valuation was so high at a price-to-sales (P/S) ratio near 100x that the stock arguably had nowhere to go but down. However, SentinelOne is anything but a flash-in-the-pan; the company is putting up triple-digit revenue growth every quarter. Its most recent earnings report even revealed an acceleration in growth:
S Revenue (Quarterly YoY Growth) data by YCharts.
The company uses artificial intelligence to detect and eliminate potential cybersecurity threats on the devices it protects. This is vastly superior to traditional anti-virus products that can only identify previously known threats and (SentinelOne will argue) superior to even cloud-based products like CrowdStrike that still use human analysts.
SentinelOne is growing at all costs, burning through $150 million in free cash flow over the past year. However, the company's balance sheet has $1.2 billion in cash against zero debt, meaning it should have plenty of money to survive a potential recession without taking its foot off the gas pedal. A declining stock price and rapid growth have shrunk SentinelOne's P/S ratio by almost 80% to 23x, a much more reasonable valuation for a hyper-growth stock.
2. Sparking new collaboration in the workplace
Enterprise software company Monday.com (MNDY 0.11%) is another stock that has seen better days. Another relative newcomer to Wall Street, the stock has fallen more than 20% since its initial public offering (IPO) last summer. Monday.com sells software on a subscription model, a hot investment theme last year referred to as software-as-a-service (SaaS). The stock also got hot, rising to a P/S of more than 60x before crashing down to earth over the past 18 months. Its growth has slowed some even if it remains stellar at more than 70% year over year:
MNDY Revenue (Quarterly YoY Growth) data by YCharts.
The company offers cloud-based work-collaboration software aimed at condensing the various programs enterprises use each day to an all-in-one solution that keeps employees on the same page. Importantly, Monday.com's product is getting serious traction with larger customers; enterprise customers spending at least $50,000 annually grew 147% year over year to 1,160 in the company's 2022 second quarter.
Strong growth isn't costing Monday.com's balance sheet either. The company has nearly $835 million in cash and lost just $25 million in free cash flow over the past year. In other words, Monday.com isn't likely going anywhere, and growth remains robust. The stock's valuation has fallen to a P/S of 13x, near its lowest since its IPO. Patient investors could do well with Monday.com over the coming years.
3. A stock helping companies engage with you
Product analytics company Amplitude (AMPL 0.20%) could be one of the lesser-known stocks among investors, but you shouldn't overlook it. After it skyrocketed in a direct listing last fall, shares have fallen more than 80% in a painful downhill ride for investors. The same theme as with the companies examined above applies to Amplitude. That is, the stock traded at lofty valuations, peaking at a P/S of more than 45x, and has since come down with the broader market. The company's revenue growth has notably slowed, which could help explain the stock's tumble:
AMPL Revenue (Quarterly YoY Growth) data by YCharts.
The company's technology helps enterprises collect and utilize user data to make data-driven decisions. It calls this software segment digital optimization -- a category Amplitude claims to be pioneering. Despite slowing revenue growth, the company's long-term growth could remain intact. It grew its paying customers 43% year over year in the second quarter of 2022 to 1,836, leaving a massive runway in a digital world with millions of businesses. It also launched new products just this year that could fuel growth if they gain traction with enterprises.
Amplitude stock is speculative because of how new the company's business model and digital optimization are, but the P/S ratio has fallen to under 7x, compensating investors for the risk. Amplitude has encouragingly strong financials, burning just $29 million over the past year while having $310 million in cash against zero debt. With a strong balance sheet, Amplitude has to show it can sustain growth over the long term. Investors could score solid investment returns if the business proves it has staying power.
