Finding the "next big thing" can seem a bit like a cliché, but most of the market's biggest winners have been trailblazers -- companies changing people's lives by helping them do something new or better than before. Swinging for the fences means you'll sometimes strike out, but you won't ever hit a home run if you don't take a swing.
The market's downturn over the past year, especially in growth stocks, has given investors a great opportunity to swing big. Stocks are far less expensive than they used to be, despite some companies continually performing well. Here are three unique businesses that have potential that is worth considering.
1. Palantir Technologies
Data has become a precious resource, but most organizations and businesses are still figuring out how to use it advantageously. Palantir Technologies (PLTR -3.12%) uses its software platforms to help solve this problem.
Palantir builds custom software for government clients on its Gotham platform and for corporations using its Foundry offering. Palantir can help analyze data for trends and input into decision making; think of it as a tool not to replace human intelligence but to augment it.
Palantir has cleared $1.8 billion in revenue over the past four quarters, with slightly more than half of that from government work. To date, it has just 337 customers, and management estimates that the company's total addressable market is valued at $119 billion.
The company is free-cash-flow positive, with $2.4 billion in cash on its balance sheet and zero debt.
PLTR revenue (TTM) data by YCharts. TTM = trailing 12 months.
The main hang-up for investors should be the company's aggressive stock-based compensation, which it uses to conserve cash instead of paying hefty salaries. Over the past four quarters, compensation was about 33% of revenue, so investors should look for that percentage to shrink as Palantir continues growing.
2. Snowflake
Analyzing data isn't the only problem companies face; storing it is no easy task, either. Many organizations have data in different places or in various formats. There is also so much of it that it can be hard to sift through it to find what you're looking for.
Snowflake (SNOW -1.99%) stores data in the cloud and lets users search for what they need. Its billing is usage-based, so there's a lot of potential as more data is created over time.
The company has a 165% net revenue retention rate, meaning customers spend more over time. Revenue has cleared $1.8 billion over the past four quarters, and Snowflake is already quite profitable, converting roughly 19% of sales into free cash flow.
SNOW revenue (TTM) data by YCharts.
It faces competition from Microsoft's Azure Search and Amazon's RedShift, services embedded within those companies' cloud platforms. But Snowflake is unique because it's compatible across platforms, giving customers more flexibility than locking them into a single cloud provider.
Enterprises seem to like Snowflake's neutrality if its revenue growth is any indication. Management is targeting $10 billion in sales by fiscal 2029; the long-term upside could be even more tremendous as data continues growing exponentially.
3. Shopify
E-commerce isn't new, but large retailers dominated it for years until Shopify (SHOP 0.23%) came along and changed that. Shopify is a software company that gives merchants of any size the tools to easily set up and operate an online store. It's the e-commerce software platform leader in the United States today, with a 29% market share.
The company has surpassed $5.2 billion in annual revenue. Shopify is continually investing in building a complete ecosystem of services for merchants, including its software tools, business financing (Shopify Capital) -- and fulfillment and supply-chain services built on its $2.1 billion acquisition of Deliverr.
SHOP revenue (TTM) data by YCharts.
E-commerce sales surpassed $905 billion in the United States alone this year, so Shopify has a significant market it can grow into. The company is spending more heavily to prepare for that, including investments into establishing its fulfillment services over the next couple of years.
This has pushed cash flow into negative territory for Shopify, which was once turning a cash profit. Investors should monitor its financials, but the spending could pay off down the road if growth continues.
