Between high inflation, rising interest rates, and concerns that a recession may be coming, investors have had a lot to digest lately. With those risk factors and others in focus, the market has generally turned away from growth stocks, and many fantastic companies have gotten dragged down in the pullback.
Yet despite the macroeconomic challenges, some companies are still growing their top lines at impressive rates -- and risk-tolerant investors could score tremendous gains by putting their money behind the right ones. These three high-growth businesses stand out to me right now as great investments poised to deliver market-crushing performances.
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1. Cloudflare
Cloudflare's (NET 1.44%) mission is to build a better internet, and it would be hard to argue that the company isn't succeeding on that front. It provides its clients with protection against distributed-denial-of-service (DDoS) attacks that aim to render websites and applications inaccessible, and it also provides content delivery network services that speed up the rate at which data is transferred. These services are central to ensuring that internet-based communications and apps function effectively, and the essential nature of its services is helping Cloudflare expand at an impressive rate.
The company's large customer count has grown at a 61% compound annual rate over the last two years, and it now has 1,908 clients in that category. Revenue increased at a 51% compound annual rate from 2018 through 2021, and the company is on track to increase sales by roughly 48.5% annually this year. That's an incredible performance that reflects high levels of demand and scalability for its services. The web-services leader also has a solid balance sheet; it ended last quarter with roughly $1.6 billion in cash and short-term equivalents on its books.
Cloudflare's category-leading, mission-critical services have the company on track to benefit from the continued growth of the internet, and investors who step up now could benefit from this year's big pullback in its share price. With the stock trading down 66% over the last year and 79% from its high despite the company's strong business performance, Cloudflare stands out as one of the best buys in the tech sector.
2. CrowdStrike
CrowdStrike (CRWD 2.03%) is another promising player in the cybersecurity space. Its Falcon software platform blocks breaches and prevents cybercriminals from accessing its clients' computers, mobile devices, servers, and other hardware. Powered by artificial intelligence technologies, CrowdStrike's software learns and improves with each new threat that it encounters, and the business has been posting rapid growth thanks to a wave of demand catalysts.
In the third quarter, CrowdStrike's revenue jumped 53% year over year to $580.9 million, and its free cash flow surged 41% to $174.1 million. While management's guidance calls for sales growth to decelerate in the fourth quarter to roughly 45% year over year at the midpoint, that's still a strong rate of expansion given the current macroeconomic headwinds, and the company is still just scratching the surface of its long-term growth opportunity.
Management anticipates that CrowdStrike's total addressable market will grow explosively in the next few years, from roughly $76 billion in 2023 to $158 billion in 2026, and the business should have plenty of expansion opportunities from there. But its share price has fallen 50% over the last year and is down 64% from its peak. As such, investors now have an opportunity to build a position in a great company at a great price.
3. Impinj
Unlike most growth-dependent tech stocks, Impinj's (PI -2.98%) valuation has gained impressively over the last year. The radio-frequency identification (RFID) specialist's share price has climbed 20% over the last 12 months, and its gains would almost certainly have been even more impressive if not for macroeconomic headwinds pressuring the market at large.
The company's RFID tags, sensors, and software make it possible to track and store information on otherwise non-electronic objects, and it could play a big role as the Internet of Things trend unfolds. Thanks to a strong demand outlook, impressive sales growth, and an improving margins picture, Impinj has been crushing the broader market lately, and there are good reasons to think that the company will continue to deliver wins for long-term investors.
Its revenue climbed by roughly 51% year over year in Q3, and its non-GAAP (adjusted) gross margin of 56.9% in the period looks quite strong for a business that primarily operates in the hardware space. With the company now valued at roughly $2.7 billion and trading at approximately 11 times expected annual sales, Impinj has a highly forward-looking valuation that could open the door for volatility in the near term. On the other hand, Impinj appears to have an absolutely massive market opportunity, and the company is still small enough to deliver massive returns for long-term investors.
