Nobody can reliably predict where the stock market will trade next week, next month, or even next year. All history can tell us for sure is that over the long term, key indexes like the S&P 500 and Nasdaq-100 make their way to new all-time highs.
Therefore, the best way to increase the probability of generating a positive return is by investing with a time horizon of five years or more. Buying an index fund is a great way to track the performance of the broader market over that time frame; this is often called passive investing. But for investors with a higher risk appetite, picking individual stocks can sometimes deliver far greater returns (and more risk, of course).
Here are two companies currently growing their sales fast enough to turn a $250,000 investment into $1 million over the next 10 years. But don't be put off by those large numbers -- investors of all experience levels can buy these two stocks and earn a potential fourfold return by 2033.
1. Datadog
Datadog (DDOG 4.95%) is a technology company that helps businesses monitor their cloud-based operations, from the back end to consumer-facing sales channels. The need for such tools is constantly growing, especially among large organizations, because businesses are more reliant than ever on cloud computing as an alternative to physical locations -- whether that be shop fronts or offices.
The cloud has powered the work-from-home trend by allowing employees to access their jobs remotely from anywhere, and also opened the door to a global customer base for millions of businesses, small and large. While the latter comes with significant sales opportunities, it also creates challenges because every online touchpoint with a customer generates data, which is only useful if it's being monitored.
For example, determining customer satisfaction in a physical store is easy; the clerk can observe shoppers' behavior and also seek immediate vocal feedback. But in an online store, customers are a click away from a competitor, so the experience needs to be clean, fast, and frictionless. If visitors run into technical glitches, they're likely to immediately shop elsewhere, and the business won't know until it sees a downtick in revenue.
That's where Datadog comes in. It monitors cloud infrastructure around the clock so it catches problems the moment they arise, before they impact the customer experience. That's why 25,500 businesses are currently using the platform, including 2,910 of which are spending $100,000 per year. They come from diverse industries, from retail to entertainment to healthcare.
Based on Datadog's $1.8 billion in trailing-12-month revenue and its market valuation of $34.9 billion, its stock currently trades at a price-to-sales (P/S) ratio of 19.4. Assuming that number remains constant between now and 2033, Datadog will have to grow its revenue by 14.9% per year to justify a fourfold gain in its stock price.
In the five-year period between 2017 and 2022, the company's revenue grew at a whopping compound annual rate of 75.5%, which would be more than enough to get the job done. It's expected to slow to a rate of 25% in 2023 because of the tough economic climate, but Datadog continues to increase its revenue forecasts, so there could be upside to that number.
Besides, even if 25% becomes the new normal, it's still significantly faster than the rate it needs to potentially turn $250,000 into $1 million over the next 10 years.
2. SentinelOne
While I touched on many of the opportunities created by cloud computing, it's time to look at one of its weak points: security. Since companies are now storing their most valuable assets online, it leaves them open to a barrage of attacks 24 hours a day, seven days per week. It requires a comprehensive cybersecurity strategy, and SentinelOne (S 1.70%) uses artificial intelligence (AI) to deliver the most advanced protection possible.
Its Singularity platform is an all-in-one product designed to protect cloud networks, endpoints, and user identities, with proactive threat-hunting tools built in to weed out cyber risks before they have an opportunity to strike.
SentinelOne believes machines can respond to incidents more quickly and more accurately than humans, so it uses AI to automate as much of the cybersecurity process as possible.
Plus, the company just introduced a new generative AI tool called Purple AI. It's a chatbot that security managers can prompt to hunt specific threats, or gain a sense of their security posture when new risks arise. They can converse with Purple AI much like they would with a program like ChatGPT, and its generative ability enables it to automatically summarize incidents in easy-to-digest reports, saving hours otherwise spent conducting postmortems after attacks occur.
SentinelOne now serves more than 10,680 business customers, including 917 of which are spending at least $100,000 per year. That top-spending customer cohort increased by 61% in the recent fiscal 2024 first quarter (ended April 30), highlighting fast-growing demand among larger organizations.
Based on SentinelOne's $477 million in trailing-12-month revenue and the company's current valuation of $4.2 billion, its stock trades at a P/S ratio of 8.8. As I mentioned, assuming the P/S remains constant between now and 2033, SentinelOne will have to grow revenue by 14.9% annually to warrant a fourfold increase in its stock price.
The company listed publicly in 2021, so we only have data going back to fiscal 2020, but between that year and fiscal 2023, it grew its revenue at a lightning-quick compound annual rate of 108%. In other words, it doubled its revenue in each of those three years.
That growth rate contracted to 70% in the recent fiscal 2024 Q1, as SentinelOne's customers tightened their belts amid the tough economic climate. Still, the company continues to grow at a pace well beyond what it will need to turn a $250,000 investment into $1 million over the next 10 years.
