When the stock market suffers from broad losses, it's often a good time to scan for potential opportunities. History suggests the market always recovers over the long term, and since the Nasdaq-100 technology index remains in bear territory with a year-to-date loss of 27%, investors have no shortage of discounted stocks to choose from.
But what should they look for? Companies that offer products and services that remain in hot demand despite the weak economy are a good place to start, particularly those that continue to beat and raise their own forecasts.
Confluent (CFLT -3.03%) ticks those boxes, but if that's not enough, one Wall Street investment bank thinks its stock could soar 147% over the next 12 to 18 months. Here's why it's a great buy going into 2023.
Businesses need data streaming
What is data streaming? It has several applications but at its core, it involves delivering live, real-time data -- whether it's to a customer, or whether it's for internal purposes to help improve workflows. Its necessity has grown from the widespread adoption of cloud computing, which has shifted companies' touchpoints with consumers online, along with most of their operations.
Consumers are used to real-time experiences when they're interacting with a business digitally, so anything less is often detrimental to that business's sales. Waiting, lag times, or general delays have grown to become unacceptable.
Take a sports betting mobile application, for example, where the stakes are incredibly high. Data streaming can be used to deliver betting odds to the end-user during a live sporting event, which opens the door to more opportunities for that sports book to accept wagers. Those odds need to be calculated and streamed to the customer within seconds of a live event occurring, and a failure to do so could result in a loss of business to a rival platform.
But many companies use data streaming behind the scenes, too. Domino's Pizza is a good case study, because it uses Apache Kafka and Confluent to give franchise owners a real-time overview of exactly what's happening in-store. It means technical problems are discovered almost immediately and fixed far more quickly than if they were later identified through a prolonged drop in sales, for example.
Therefore, there's an obvious need for what Confluent provides both on the consumer-facing side of a business, and on the back end.
No economic slowdown for Confluent
Confluent's recent financial results for the third quarter of 2022 were positive by just about every metric. The company crushed its own prior revenue guidance, and it also reported a much smaller loss than it was expecting.
One of the biggest numbers of the report was Confluent's remaining performance obligations (RPOs), which soared 72% year over year to $663.5 million. RPOs represent the company's pipeline of work, and they typically convert into revenue over time, which indicates this recent run of success probably won't slow down anytime soon.
In fact, Confluent just increased its 2022 guidance for a third time and now expects its full-year revenue to come in at $579 million (at the midpoint). That would be a 49% jump compared to its 2021 result.
Much of Confluent's growth is coming from large organizations. It now has 921 customers spending at least $100,000 annually with the company, up 39% from 664 customers a year ago, which further highlights how critical data streaming has become.
Wall Street is bullish on Confluent stock
Confluent has become a popular name on Wall Street. Of the 19 analysts tracked by The Wall Street Journal, 11 have given Confluent stock the highest-possible buy rating. The other eight are in the neutral camp, and not a single analyst recommends selling.
But in terms of potential upside, one investment bank is more bullish than the rest. Credit Suisse thinks Confluent stock could soar 147% from where it trades as of this writing to $55 per share.
The stock is coming off a low base, having lost 76% of its value from its all-time high. Confluent is one of many quality companies investors have discarded amid the broad sell-off in the technology sector, but it's one of the few still consistently raising its forecasts in the face of a weakening economy.
Data streaming will only expand in scope and importance over time, so Confluent could be in the early innings of a very promising growth story.