A lot is going on in the world of growth stocks outside of the artificial intelligence (AI) names that investors are excited about. Investors can find stocks worth a look in digital advertising, robotic-assisted surgery, and even fertility care. Recent pullbacks make The Trade Desk (TTD 1.67%), Intuitive Surgical (ISRG 0.59%), and Progyny (PGNY -1.42%) more attractive stocks. Sick of relentless AI talk? Then this article is for you!
The future of advertising
The future of advertising is digital and programmatic. More and more, people consume media outside of cable and satellite television. Social media, mobile, and online video ads are significant players, but the most important of all is streaming TV. This is where The Trade Desk shines.
Programmatic advertising involves several players interacting in a fraction of a second. There is the publisher that owns the ad space, the supply side platform (SSP) that sends out the bid request for the publisher, the advertiser looking to buy ad space, and then the demand side platform (DSP), which is what The Trade Desk is.
The DSP purchases the advertising space for its clients through online bids using data analytics to optimize campaigns and reach target audiences efficiently. Targeting is critical. After all, what good would it do for a company like Chewy, for instance, to advertise to people who don't own pets? Even targeted ads go beyond the intended audience but hit the mark more efficiently. The Trade Desk is a pioneer in digital advertising, and this has allowed it to achieve tremendous results with years of secular tailwinds upcoming.
Revenue and free cash flow have exploded, reaching $1.7 billion and $530 million, respectively, over the trailing 12 months, as shown below.
TTD Revenue (TTM) data by YCharts
Revenue grew 23% in the quarter ended June 30, which is strong considering that advertisers have been scaling back spending this year. These results allowed the company to create an excellent balance sheet with $3.8 billion in current assets, versus $2.1 billion in current liabilities and no long-term debt.
No one can claim that the stock is cheap at over 20 times sales, however, the company has a lot going for it and the stock has pulled back 12% from its one-month high price and 32% from its all-time high, making a more attractive entry point for potential long-term investors.
The future of surgery
Another stock that has pulled back from recent highs is Intuitive Surgical, which, as of this writing, trades 19% off its 2023 high price and 21% off its all-time high. Intuitive Surgical pioneered robotic-assisted, minimally invasive surgical systems and has built a powerful company with a massive moat.
Using Intuitive's da Vinci surgical system, doctors can perform procedures using techniques that enable faster recovery, less pain, and shorter hospital stays. As you can imagine, the regulatory process and enormous cost of developing competing systems give the company a huge competitive advantage.
Intuitive Surgical's revenue has risen rapidly from $4.5 billion in 2019 to $6.7 billion over the 12 months ended June 30. Its balance sheet is a fortress with $7.1 billion in cash and investments and no long-term debt.
The company uses a "razor-and-blades" strategy, meaning it first sells the systems and then makes more money selling services, instruments, and accessories. This recurring revenue typically accounts for about 70% of sales, meaning that as the company sells more and more systems, Intuitive Surgical will continue making tons of income.
A growing need
Progyny benefits from the convergence of two societal trends helping create demand for its product. First, women in the U.S. are having babies later in their lives. The median age of a birth mother is now 30 years old, and more women than ever are having children well into their 40s. This creates fertility challenges. Nontraditional couples sometimes face difficulties achieving parenthood as well.
Meanwhile, employers competing for talent in a tight labor market use premium benefits to lure the best employees. One of these is Progyny, an additional insurance benefit that provides the insured access to a network of fertility experts and other family-building benefits.
Progyny makes money as most insurers do, with a monthly flat rate per individual covered plus extra usage fees. This means that the critical measures of the company's growth are the number of employers signed up (typically large corporations or union health plans) and the number of individuals covered. The company's client base increased 41% year over year (YOY) to 384 last quarter, while the number of "covered lives" -- which includes the babies -- increased from 4.3 million to 5.3 million.
Progyny anticipates over $1 billion in revenue this year (a 33% year-over-year jump) -- not bad for a company whose market cap is only $3.2 billion. The company is also profitable and has a clean balance sheet, which makes me believe Progyny could be an acquisition target of some of the massive companies in the health insurance industry, though it doesn't make sense to buy a company based on hopes of a buyout.
These three terrific growth stocks have massive long-term potential that isn't based on artificial intelligence. Long-term investors should give them serious consideration during the current pullback.
