When looking for investments, it's wise to consider companies with a sizable market so they won't run out of room to expand. As a growth investor, I want maximum upside.
Two stocks that fit that bill are CrowdStrike Holdings (CRWD 2.03%) and Procore Technologies (PCOR 0.39%), which operate in cybersecurity and construction, respectively. If you have $1,000 ready to deploy (or any amount for that matter), these two look like great additions to a portfolio. Here's why:
1. CrowdStrike
As businesses allow more modes of work -- be it remote, hybrid, or in-person -- the opportunity for cyberattacks only ramps up. With many devices accessing a company's network, like phones and laptops, these present vulnerabilities that bad actors want to exploit.
A business might choose CrowdStrike to secure these endpoints. Its clients can add other services like cloud security, identity protection, and threat intelligence to create a robust cybersecurity blanket. With 62% of the company's customers using at least five different offerings, it's become heavily integrated with many clients.
Management estimates its total addressable market (TAM) is about $76 billion. And through various product launches and industry expansion, it expects its TAM to rise to $158 billion by 2026. With CrowdStrike's full-year revenue guidance of $3.02 billion, it still is a long way from fully exploiting its target audience.
Even though revenue growth has slowed over the past few quarters, it still registered 42% growth in the first quarter (ending April 30), with 35% expected in the second quarter. With Wall Street analysts expecting a 35% increase for the rest of fiscal year 2024 and 29% in 2025, CrowdStrike has plenty of potential left.
It's also fairly priced for that potential. Because CrowdStrike is profitable on a free-cash-flow (FCF) basis, I'll use that metric to value the company. (It barely posted a profit in the first quarter, so price-to-earnings wouldn't be appropriate.)
At 48 times FCF, it's not the cheapest.
CRWD price-to-free-cash-flow data by YCharts.
But if you use full-year projections and CrowdStrike's 30% FCF margins, the stock is valued at 39 times full-year estimates.
For a company growing about 30% annually, that's a reasonable price. It has a long way to go before maximizing its potential, and investors should take advantage of the stock price before it returns to a higher valuation.
2. Procore
The construction industry has been one of the least influenced by technology over the past few decades. Only recently did cellular connectivity become powerful enough to consider using at job sites, which opens a new wave of opportunities for anyone in this field.
Procore's construction-management software capitalizes on this trend, keeping all members of a construction project connected on a single goal. This helps prevent errors and costly rework, which can push projects past deadlines and over budget.
With tools to manage pre-construction tasks like bids and estimates, project management dashboards to check up on progress, and financial management to handle how each contractor is billing, Procore's platform is impressive.
It has steadily gotten bigger in its time as a public company, delivering around 30% growth quarter after quarter.
PCOR revenue (quarterly YoY growth); data by YCharts. YoY = year over year.
Still, Procore is much smaller than a company like CrowdStrike and only brought in $214 million during the first quarter. For all of 2023, Procore expects to generate about $910 million in revenue, about 27% year-over-year growth.
Because Procore is still a relatively young business, it still has a ways to go before becoming profitable. Therefore, we'll use the price-to-sales ratio to value the company.
PCOR PS ratio; data by YCharts.
At 12 times sales, the stock is somewhat expensive. But compared to other software-as-a-service (SaaS) companies with similar growth rates, like The Trade Desk (24 times sales), Datadog (17 times sales), or Cloudflare (21 times sales), Procore looks like a bargain.
With operating expenses only rising 23% compared to its 34% growth, the company is steadily improving its margins and should achieve profitability with scale.
Given how large the construction industry is, Procore has a massive market. It's this opportunity and its execution on it that make the stock a solid buy right now.
