The Federal Reserve adopted a hawkish stance in March last year and started raising interest rates in a bid to curb surging inflation. The good part is that the central bank's efforts seem to be bearing fruit, as recent data suggests that inflation is cooling.
The increase in consumer prices has dropped from 9.1% in June last year to 6.5% in December 2022. Of course, that number is still higher than the Fed's inflation target of 2%, which means that more interest rate hikes may be in the cards. We have seen that a high-interest-rate scenario has been adverse for the stock market. But as the inflation rate is dropping, there are chances of the Fed reducing interest rates in 2023.
This may trigger a bull market, which is why now may be a good time to load up on shares of CrowdStrike Holdings (CRWD +3.80%) and Dutch Bros (BROS 1.81%) -- two fast-growing companies that have taken a beating over the past year.
1. CrowdStrike Holdings
CrowdStrike Holdings stock is down 37% in the past year, but the company's growth suggests that it could regain its mojo. The cybersecurity company's customer count has been increasing rapidly, and it has been building a sustainable stream of revenue for the long run.
NASDAQ: CRWD
Key Data Points
This is evident from the $2.34 billion annual recurring revenue (ARR) that CrowdStrike reported in the third quarter of fiscal 2023 (for the three months ending Oct. 31, 2022), an increase of 54% over the prior-year period. This metric refers to the annualized value of customer contracts in force at the end of a particular period, and it grew at a faster pace than CrowdStrike's actual revenue growth of 53% during the quarter to $581 million.
What's more, CrowdStrike's ARR last quarter easily exceeds the company's trailing 12-month revenue of $2 billion, suggesting that it is on track to sustain its robust growth. The growth in the company's subscription business is playing a key role in helping CrowdStrike build a solid revenue pipeline. Its subscription revenue was up 53% year over year last quarter to $547 million, driven by a 44% year-over-year increase in the subscriber count.
The faster growth in subscriber revenue as compared to the increase in subscriber count suggests that CrowdStrike's customers are spending more on its offerings. That is indeed the case, as 60% of the company's customers are using five or more of its modules.
More importantly, CrowdStrike should be able to sustain such impressive growth rates, as it is sitting on a tremendous end-market opportunity. It sees a total addressable market worth almost $98 billion by 2025, which means that it has tapped around only 2% of the available opportunity. As such, it is not surprising to see why CrowdStrike's top line is expected to take off impressively in the future.
CRWD Revenue Estimates for Current Fiscal Year data by YCharts
With CrowdStrike trading at the lower end of its 52-week range right now and its earnings expected to increase at an annual rate of 59% a year for the next five years, investors may want to buy this fast-growing cybersecurity stock before it breaks out and starts soaring.
2. Dutch Bros
Drive-through coffee chain operator Dutch Bros has been expanding aggressively, and that's reflected in its growth rate. The company announced preliminary results for the fourth quarter of 2022 on Jan. 9 and issued a healthy revenue outlook of $950 million to $1 billion for 2023.
NYSE: BROS
Key Data Points
That would be a nice 30% jump over Dutch Bros' estimated 2022 top line of $732 million. The company plans to open at least 150 total stores in 2023, up from last year's 133 new shops. At the same time, Dutch Bros expects low-single-digit growth in same-store sales this year. The improvement in same-store sales growth should be a positive for the stock. That's because tepid same-store sales growth has been an Achilles heel for the company, despite the price increases that it has implemented.
Dutch Bros' strategy of fortressing, which involves opening multiple locations near one another to capture customer attention and reduce delivery times and costs, has led to the cannibalization of sales of existing stores. This is why Dutch Bros' same-store sales were down 2.1% year over year in the fourth quarter of 2022, as new store openings led to "sales being transferred from existing shops to new ones."
The good part is that Dutch Bros sees same-store sales increasing in the low single digits over the next five to 10 years, along with annual store growth in the mid-teens. The company expects this combination of same-store sales growth and an increase in the store count to drive approximately 20% annual revenue growth in the long run. Additionally, Dutch Bros expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to outpace its revenue growth.
All this explains why analysts are expecting nearly 20% annual earnings growth from Dutch Bros over the next five years. More importantly, investors are getting a great deal on the stock right now, as it is trading at just 2.3 times sales following its sharp decline in the past year. This is nearly identical to the S&P 500's price-to-sales ratio of 2.4.
Given Dutch Bros' healthy growth levels and its bright long-term prospects, investors may want to buy this fast-growing company before it starts taking off and becomes expensive.
