The past year has been terrible for growth stocks as surging inflation, high interest rates, and fears of an economic slowdown led investors to park their funds in safer assets, which explains why shares of some fast-growing companies took a big beating.
Tesla (TSLA 4.96%), for instance, is down 19% in the past year, while Cloudflare (NET -1.05%) gained just 4% despite impressive growth. The past three months haven't been great for these tech stocks, either, as they dropped due to concerns that their growth is slowing.
But if you have $1,000 in investible cash right now -- which means that your bills are paid, there are no high-interest loans or credit card debt to service, and you have saved enough for a rainy day -- then it might be a good idea to put that money in these two stocks, either individually or combined. Let's look at the reasons why.
1. Tesla
Tesla has been a terrific investment over the past decade. Shares of the electric vehicle (EV) specialist turned a $1,000 investment into $27,000 in the past 10 years, averaging annual returns of just over 39%. The impressive returns can be attributed to the company's outstanding growth over the years.
TSLA revenue (TTM) data by YCharts. TTM = trailing 12 months.
Tesla operates in an industry that has a lot of room to grow. Sales of EVs rose from nearly nothing in 2010 to 2.3 million units in 2020, according to the International Energy Agency (IEA).
The market gained terrific traction of late as EV sales reportedly surged to 10 million units in 2022. The IEA is forecasting a 35% spike in 2023 to 14 million units, accounting for an 18% share of the overall car market. By 2030, the agency estimates that EVs could account for over 60% of all cars sold globally. So it isn't surprising to see why consensus estimates anticipate an acceleration in Tesla's sales.
TSLA revenue estimates for current fiscal year, data by YCharts.
The company's focus on higher production capacity, the introduction of new vehicles, and expansion into new markets should help it deliver the impressive growth that Wall Street is expecting.
For instance, the company is looking at building a factory in India for both the domestic market and export. Tesla is reportedly holding talks with India's government, according to Bloomberg, and its entry into that market could unlock a robust opportunity. The EV market revenue in India could increase at an annual rate of 66% through 2029 and hit $114 billion, according to Fortune Business Insights.
The company has been rapidly increasing its capacity to meet growing demand across the globe. At its 2023 investor day, held in March, Tesla said that it has produced its 4 millionth vehicle. The company took seven months to go from 3 million to 4 million vehicles, a big improvement over the 12 years it took to produce its first million.
Investors can expect production capacity to continue improving in 2023 as it plans to start deliveries of the Cybertruck later this year.
Also, the company is in pilot production of the Tesla Semi electric truck and recently delivered 21 trucks to PepsiCo (NASDAQ: PEP). In all, Tesla has an annual production capacity of 2 million vehicles, and that should increase once the Cybertruck and the Semi hit production.
CEO Elon Musk has set an ambitious target of selling 20 million vehicles a year by 2030. Even if it only gets close to that target, investors can expect the company to sustain its impressive growth rate for a long time. With the stock currently trading at 7.3 times sales as compared to its five-year average price-to-sales (P/S) ratio of 11, investors can buy it at a relatively attractive valuation and benefit from the potential secular opportunity in the EV space.
2. Cloudflare
It has been less than four years since Cloudflare went public in September 2019. A $1,000 investment in its initial public offering is now worth more than $2,800. But investors who missed Cloudflare's rally can now buy it at a cheaper price-to-sales multiple than it was trading at in 2019.
It now has a P/S of 18, slightly lower than the 20 it was trading at when 2019 ended. And the stock is way cheaper than it was toward the end of 2021.
NET PS ratio, data by YCharts.
Buying Cloudflare at this valuation looks like a no-brainer. The company has been growing at an impressive rate that it can sustain in the long run. Revenue in the first quarter of 2023 increased 37% over the prior-year period to $290 million. It expects to finish the year with $1.28 billion in revenue, which would be a 31% jump over 2022.
More importantly, the demand for Cloudflare's internet infrastructure services -- which improve the performance, security, and reliability of internet connections with a large network of servers -- should remain strong in the long run and boost its addressable market. Its total addressable market (TAM) was worth $32 billion in 2018, and it will increase to $146 billion in 2023. Management estimates its TAM could hit $204 billion by 2026.
Cloudflare's total revenue forecast for 2023 indicates that it is at the beginning of a steep growth curve, explaining why revenue is expected to accelerate.
NET revenue estimates for current fiscal year, data by YCharts.
And analysts are anticipating earnings to increase at an annual rate of 62% over the next five years. So, investors looking for a growth stock would do well to buy this cloud play now while it remains beaten down at 26% off its 52-week high.
