One school of thought says the next bull market begins when the S&P 500 (SNPINDEX: ^GSPC) reaches a new record high. By that standard, the benchmark index is roughly 10 percentage points away from bull market territory. That threshold is particularly meaningful because the S&P 500 returned an average of 285% during the last five bull markets.

In the meantime, investors should take a look at Cloudflare (NET 2.98%) and Elastic (ESTC 3.11%). Analysts at Morningstar expect sales growth of 332% and 139%, respectively, over the next five years. Those forecasts could certainly translate into significant share-price appreciation.

Here are the details on these growth stocks.

1. Cloudflare

Cloudflare provides a broad range of cloud services that improve the performance and security of business-critical applications and infrastructure. The company has the fastest cloud network and developer platform on the market, and it has become a key player in several cloud verticals, including zero-trust network access and edge development platforms.

Cloudflare values its addressable market at $146 billion. Zero-trust security and developer services account for most of that total, and persistent R&D is paying off in both areas. Of particular note, management reported a 250% increase in the number of applications on its Workers development platform during the first half of the year, due in large part to an influx of generative artificial intelligence (AI) start-ups.

To quote Cloudflare CEO Matthew Prince:

By our estimates, Cloudflare is the most commonly used cloud provider across leading AI startups. In the second quarter alone, we shared ten major announcements and features to extend Cloudflare Workers as the preeminent development platform built for the age of AI. We believe we're uniquely positioned to become a leader in AI inferencing.

Cloudflare looked sharp in the third quarter. Its customer count climbed 17% to 182,000, and the average customer spent 16% more. In turn, revenue increased 32% to $336 million and non-GAAP net income soared 189% to a record $55 million. Investors can expect similar momentum in the future as the company leans into opportunities in developer services and zero-trust security.

Looking ahead, management is targeting a revenue run rate of $5 billion by the third quarter of 2027, implying growth of 39% annually over the next four years. Similarly, Morningstar analysts expect Cloudflare to grow revenue by 34% annually over the next five years, implying that sales will increase 332% during that period.

Both forecasts make its current valuation of 16.5 times sales look reasonable, especially when the three-year average is 40.2 times sales. Risk-tolerant investors should feel comfortable buying a small position in this growth stock today.

2. Elastic

Elastic is a data analytics company that offers three prebuilt applications: Search, Observability, and Security. Those products are powered by the Elastic Stack, a platform that can ingest and index machine-generated data, then use AI to analyze and draw insights from the information. Developers can build custom applications with the Elastic Stack, or businesses can deploy the three prebuilt applications.

Elastic has long been the most popular workplace search engine, according to DB-Engines, and it outranks its closest competitor, Splunk, by a wide margin. That strong market presence lends itself well to a land-and-expand strategy. In other words, Elastic is theoretically well positioned to win customers with its Search software, then cross-sell those customers its Observability and Security products.

Turning to the financials, Elastic reported reasonable results in the first quarter of fiscal 2024 (ended July 31). Revenue increased 17% to $294 million and non-GAAP net income improved to $25 million, up from a loss of $14 million in the prior year. But investors should be mildly concerned about slowing customer growth and the declining retention rate.

Elastic increased its customer count 6% in the first quarter (compared to 21% last year) and the average customer spent 13% more (compared to 30% more last year). The deterioration in those metrics may be entirely related to the challenging economic backdrop, but it could also reflect competitive pressure from cybersecurity vendors like CrowdStrike and observability vendors like Datadog.

Morningstar analysts expect Elastic to grow revenue by 19% annually over the next five years, implying that sales will increase 139% during that time period. That forecast makes its current valuation of 6.2 times sales seem fair. But I would personally wait for proof that Elastic can reaccelerate customer growth before buying this stock.