Are the extra hot summer days leaving you too exhausted to spend your hard-earned money on nighttime entertainment? If you've got an extra $200 that you don't need to pay bills or cover unforeseen emergencies, there are a couple of growth stocks that you want to consider.
Both of these companies are solving big problems for their growing client bases and generating impressive results in the process. Here's why adding some shares of these stocks to your portfolio now could lead to big gains down the road.
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TransMedics Group
TransMedics Group (TMDX 3.17%) is a niche medical technology company that makes an organ care system (OCS) for transplant centers and hospitals. The company's OCS is approved to pump oxygenated blood through donated hearts, lungs, and livers, so they can travel greater distances to reach the people who need them.
TransMedics isn't satisfied with simply selling an OCS. It's building out a national OCS program that organ transplant centers can hire to retrieve a donated organ, place it into an OCS, and deliver it to the transplant center where it's needed. To improve the reliability and profitability of its logistics service, it recently announced the upcoming acquisition of a charter flight operator.
Transplant centers are already beating a path to TransMedics' doors. Second-quarter revenue soared 156% year over year to $52.5 million. The company's net loss narrowed to $1 million from $11.5 million in the previous year period.
TransMedics looks like a great growth stock to buy now and hold over the long run, but investors should understand the risks. The stock is trading for 20.2 times trailing sales, which is a nosebleed-inducing multiple. The company's growing fast enough to justify its high valuation. That said, any hints of a slowdown over the next few years could cause its price to come crashing down. If you're going to take a chance on this stock make sure it's a small part of a well-diversified portfolio.
DigitalOcean
DigitalOcean (DOCN 3.30%) specializes in cloud services for start-ups and small to medium-sized businesses (SMBs). Its platform lets developers build and deploy new applications for next to nothing up front and then begin paying when they succeed and begin generating traffic.
Shares of DigitalOcean tanked around 24% after the company announced second-quarter results. Investors were responding to a dampened outlook for the rest of the year. The company lowered its full-year revenue estimate to a range between $680 million and $685 million from the range between $700 million and $720 million that it shared about three months ago.
DigitalOcean may have overpredicted its growth rate this year, but it's still outpacing Amazon Web Services (AWS). In the first half, DigitalOcean reported revenue that soared 28% year over year. AWS sales rose just 5% over the same time frame.
The global cloud computing market reached $484 billion last year, and it's expected to rise by 14.1% annually through 2030. While many enterprises spend millions on cloud infrastructure from the likes of AWS and Microsoft Azure, these services are usually too expensive for start-ups and SMBs to engage with.
DigitalOcean's focus on start-ups that can grow into small businesses is working. The number of customers spending more than $50 per month rose 42% year over year in the second quarter. The company narrowed its second-quarter loss to $1.5 million, and we'll probably see sustainable profits in the quarters to come.
After tanking in response to second-quarter earnings, shares of DigitalOcean are trading for the very reasonable price of 20.9 times forward-looking earnings estimates. At this very reasonable multiple, investors can come out ahead over the long run even if its growth rate gets cut in half. Buying some shares on the dip to hold over the long run looks like the right move.
