Regularly adding money to growing companies is a surefire way to build lasting wealth in the stock market. It doesn't guarantee your stocks will rise every year, but what matters over the long term is owning shares of a group of companies that can grow revenue over many years.
The market sell-off is offering up good deals on some promising growth stocks to hold for the long term. Let's look at two companies to consider adding to your portfolio in May.
1. Cloudflare
Cloudflare (NET +3.12%) is a fast-growing cloud services provider that helps companies maintain secure, fast websites and applications. Several popular internet-facing companies, including Netflix and OpenAI, use Cloudflare's services.
NYSE: NET
Key Data Points
Revenue, which the company generates from subscriptions, grew 37% year over year in the first quarter. Quarterly revenue more than tripled over the last three years, but the stock initially fell after the company's first-quarter earnings report showed slowing revenue growth.
Companies are pulling back on spending with the economy still uncertain in the near term. Analysts have been lowering their estimates and currently expect Cloudflare to post revenue growth of 31% in 2023.
If you have a long horizon for your investments, this is a good buying opportunity. The stock is already trading well off its previous highs, and while it's not cheap on a price-to-sales basis, Wall Street might be underestimating the company's long-term growth opportunity.
As a leading content delivery network (CDN), Cloudflare is well positioned to benefit from growing usage of Apple's iCloud+ Private Relay. Cloudflare is a partner of Apple on this security feature, which hides users' locations from their internet service provider on their iOS device.
The company is tapping into long-term tailwinds in internet security and privacy. The global CDN market is estimated at $105 billion and projected to grow 18% per year through 2032, according to Precedence Research. As a trusted provider in this booming market, Cloudflare is a gem that investors will want to buy and hold for potentially sizable long-term gains.
2. Monday.com
Another high-growth, subscription-based software company to add to your portfolio this month is Monday.com (MNDY 4.29%). The company's Work OS platform makes setting up management and productivity tools for employees fast and intuitive, and it's growing faster than Cloudflare.
NASDAQ: MNDY
Key Data Points
First-quarter revenue reached $162 million, up fourfold compared to the same quarter in 2020. The company's low-code work platform is drawing in customers at a rapid clip.
However, this fast-growing business is seeing some pressure from the uncertain economy. Revenue growth has slowed rapidly over the last year. Between 2019 and 2022, revenue grew at an annualized rate of 88%, but management expects it to be between 35% and 36% this year.
Still, Monday.com is approaching the $1 billion annual revenue milestone, so its revenue growth was going to slow as the business gets larger. Observers also have to give it some slack due to the challenging business environment.
It's still an impressive amount of growth considering the market for productivity tools in the enterprise space is very competitive. There are numerous vendors offering similar tools as Monday.com's, but management mentioned one positive in the recent earnings report that suggests it is building a competitive moat around its platform.
Monday.com rolled out its customer relationship management (CRM) product to a selection of customers in the first quarter, and total sales in these accounts accelerated. Salesforce dominates the CRM market, but Monday.com's success here indicates it has an offering that isn't easily replicated by others.
Whether its platform is just easier to use than the competition or Monday.com is simply tapping into a massive opportunity, it's clearly on its way to scaling up into a larger business. Once a small business crosses that $1 billion threshold in annual revenue, it almost controls its own destiny at that point. Many start-ups fail to grow as big as Monday.com is right now, and its current rate of growth points to a bright future.
