It's hard to fathom, but we are already approaching 2023's final months. It's been a far better year for the stock market than 2022, but many growth stocks have seen momentum cool over the past few months.
They say money never sleeps, and investors are juggling a lot of uncertainty right now, including a potential recession, sky-high interest rates, and a looming presidential election.
However, there is often an opportunity when the markets are uneasy. Three Fool.com contributors have circled Palantir Technologies (PLTR 3.73%), CrowdStrike (CRWD 2.03%), and Sea Limited (SE 0.05%) as potential year-end winners that could give shareholders something to celebrate.
Here is what you need to know.
Palantir stock could be getting ready for its next leg higher
Justin Pope (Palantir Technologies): Data analytics and AI company Palantir was a big winner earlier this year. However, shares have surrendered many of those gains, falling nearly 30% from their high earlier this year. But this dip is one investors should consider buying. The company is becoming firmly entrenched in government and commercial applications with its Gotham, Foundry, and AIP platforms. These help organizations create and deploy software that organizes and analyzes data, helping real-time decision making.
The company is building new relationships; its customer count grew by 38% year over year in the second quarter. This is a good signal for future revenue growth because Palantir makes more money on its customers as its software becomes increasingly essential to operations. Palantir is now generating positive quarterly profit under generally accepted accounting principles (GAAP), and earnings growth should remain strong as revenue keeps growing faster than expenses moving forward.
Analysts believe the company will grow earnings by an average of 66% annually over the long term, resulting from new business stacking on top of existing, profitable business (operating leverage). Today shares trade at a forward P/E of 62. In other words, a price/earnings-to-growth (PEG) ratio of just under 1 signals that Palantir is a bargain due to its expected earnings growth in the future.
Of course, Palantir needs to realize that potential and perform to analyst expectations. However, companies have begun emphasizing data and artificial intelligence (AI). It's becoming clear that this should remain a priority for governments and commercial customers moving forward, arguably making Palantir a powerful player in how organizations get the most from that data. The one-year countdown to the next election cycle is approaching, and investors could revisit Palantir if attention remains fixed on AI.
CrowdStrike's high-powered revenue growth makes it a must-know name for growth-oriented investors
Jake Lerch (CrowdStrike): My pick for a hypergrowth stock destined to end 2023 on a high note is CrowdStrike. 2023 has been good for the stock, which is up 56% year to date. Still, I think the maker of cloud-based cybersecurity software is poised to keep rolling into 2024.
That's because CrowdStrike, with its AI-powered cybersecurity modules, remains well positioned within a booming sector. With countless organizations rushing to move sensitive data and operations to the cloud, there's never been a better time for malevolent actors to cash in by hacking vulnerable systems.
As a result, CrowdStrike's security solutions that prevent cyber breaches have grown in popularity -- and that popularity is leading to excellent financial results.
Consider some highlights from the company's most recent quarterly report (for the three months ended July 31).
- Quarterly revenue increased to $732 million -- up 37% year over year.
- Annual recurring revenue (ARR) rose to $2.9 billion.
- Sixty-three percent of customers now subscribe to five or more security modules.
In addition, CrowdStrike is making key strides in profitability. Net income for the most recent quarter was $8.5 million. That's the highest ever for the company and the second straight quarter of positive net income.
CRWD Net Income (Quarterly) data by YCharts
CrowdStrike is expected to grow revenue between 25% and 35% over the next 16 months, with annual revenue increasing to over $3 billion by the end of fiscal year 2025 (the 12 months ending on Jan. 31, 2025).
Granted, CrowdStrike's stock isn't for every investor, and it sure isn't cheap. It trades with a price-to-sales ratio of 15 -- high, even for a growth stock.
However, given its rapidly rising sales trajectory, I think CrowdStrike remains a name that investors should keep an eye on -- particularly for those investors looking to add some high-octane growth to their portfolios.
This Southeast Asian conglomerate may be very close to a comeback
Will Healy (Sea Limited): Sea Limited could end on a high note because the stock is coming off a low note. After surging to almost $89 per share early in the year, it now sells for less than $40 per share due largely to the disappointing performance of gaming division Garena.
Garena's revenue in the second quarter of 2023 fell 41% compared with the same quarter last year. The falling popularity of Free Fire, once the world's most downloaded mobile game, reduced growth, and its other games have not experienced the same degree of success.
That stands in contrast to the hypergrowth in Sea's other two segments, Shopee e-commerce and a fintech business called SeaMoney. These segments increased revenue by 21% and 53%, respectively, over the same period.
However, Garena's fortunes could change soon. Free Fire is expected to return to India in late September. India, the world's most populous country, forced Sea Limited to exit that market in early 2022. Fortunately, Garena created a version of Free Fire designed to comply with the wishes of India's government, and this relaunch should help reinvigorate the lagging gaming division.
Still, even with Garena's massive revenue decline, overall Q2 revenue rose 5% year over year to $3.1 billion. Moreover, with the company's efforts to reduce expenses, its costs and expenses dropped 11% over the same period. This allowed for a Q2 net income of $331 million, its third straight quarterly profit.
Additionally, that profit is sufficient to take its forward P/E ratio to just 17. This is a level considerably lower than other e-commerce conglomerates like Amazon and MercadoLibre. The low forward earnings multiple may also indicate the bears have overreacted to Garena's poor performance.
SE PE Ratio (Forward) data by YCharts
Due to the aforementioned struggles and the 2022 bear market, Sea Limited stock sells at an approximate 90% discount to its all-time high. Nonetheless, if entering India allows Garena to return to growth (or at least stops the massive declines), Sea's other two segments could bring about a bright ending to the year for the entertainment stock.
