Many growth stocks have dropped sharply this year, reflecting fears that red-hot inflation and rising interest rates could trigger a recession. For instance, Datadog (DDOG -0.45%) and Zscaler (ZS -0.25%) have seen their share prices fall 64% and 67%, respectively, leaving both stocks near 52-week lows.

However, some analysts on Wall Street see that sell-off as a buying opportunity. Goldman Sachs analyst Kash Rangan has a price target of $162 per share on Datadog, which implies 144% upside from its 52-week low. And Credit Suisse analyst Phil Winslow has a price target of $275 per share on Zscaler, which implies 141% from its 52-week low.

As a caveat, investors should never rely too much on short-term price targets. They are little more than glorified guesses, and they can change at the drop of a dime. That said, Datadog and Zscaler are backed by compelling long-term investment theses. Here's what investors should know.

Datadog: A software vendor that leads the application performance monitoring market

Datadog provides observability and cybersecurity software. Its portfolio comprises more than a dozen products that provide customers with real-time visibility across their applications, networks, and infrastructure, helping them keep their IT environments performant and secure. Datadog also drives enterprise agility. Its platform improves collaboration among development and operations teams by providing them with a shared view of applications and the supporting infrastructure.

Customers also benefit from more than 600 integrations that accelerate adoption, and a powerful artificial intelligence (AI) engine that automatically surfaces predictive insights, detects anomalies, and handles root cause analysis. Those attributes, coupled with the broad utility of its platform, have helped Datadog carve out a strong presence in several observability verticals.

In June, IT research specialist Gartner ranked Datadog as a leader in application performance monitoring for the second consecutive year, citing its broad product offering and powerful AI engine as key strengths. More recently, software research company G2 recognized Datadog as a leader in log management, database monitoring, and cloud infrastructure monitoring.

Not surprisingly, the company is growing like wildfire. In the third quarter, Datadog increased its customer count 27% to 22,200, and the average customers increased their spending by more than 30% over the past year. In turn, third-quarter revenue soared 61% to $437 million and free cash flow jumped 18% to $67.1 million.

Turning to the future, shareholders have good reason to be bullish. Datadog is a key enabler of digital transformation, meaning it should benefit from the proliferation of enterprise software and the continued adoption of cloud computing. In fact, management says its market opportunity will increase from $41 billion in 2022 to $62 billion by 2026.

With that in mind, shares currently trade at 14.8 times sales, a bargain compared to the three-year average of 38.8 times sales. That creates a worthwhile buying opportunity, though investors shouldn't bank on triple-digit returns in the near term.

Zscaler: A cybersecurity company that provides unparalleled network protection

Businesses have traditionally secured sensitive data by building firewalls around their corporate networks, but cloud computing and hybrid work have fundamentally changed the IT landscape. Many applications now live in the cloud, and employees often access corporate resources from personal devices on unsecured networks.

Zscaler modernizes the corporate network with its security service edge (SSE), a cloud platform that safely connects users to applications and the open web from any device or location. In fact, Zscaler operates the largest security cloud in the world. It handles 250 billion requests and gathers 300 trillion security signals on a daily basis, each of which makes its artificial intelligence models better at detecting threats. That unmatched scale allows Zscaler to provide better protection that other vendors.

Not surprisingly, Zscaler is growing at a tremendous pace. In the most recent quarter, revenue climbed 54% to $356 million and non-GAAP earnings soared 107% to $0.29 per diluted share. Meanwhile, remaining performance obligation (a leading indicator of future sales) soared 57% during the quarter, implying strong top-line growth in the coming quarters.

On that note, shareholders have good reason to be bullish on this cybersecurity company. Management values its addressable market at $72 billion, and Gartner has recognized Zscaler as a leader for 11 consecutive years and counting. That puts the company in a great position, as 80% of enterprises are expected to adopt SSE architecture by 2025, up from 20% in 2021.

Shares currently trade at 14.1 times sales, a bargain compared to the three-year average of 37.2 times sales. For that reason, this stock is a smart buy, though the odds of triple-digit returns in the near term are slim at best.