After watching the stock more than double in 2023, it's understandable that some investors would think they've missed the boat on Shopify (SHOP 1.11%). Sure, there's a bright outlook for the software-as-a-service specialist as it benefits from lower costs and soaring sales growth. Yet, much of that enthusiasm is reflected in Shopify's elevated valuation.
There are other good options for growth stock investors to consider if Shopify's big premium turns them off. Amazon (AMZN 3.43%) and Okta (OKTA -0.69%) shares could be even better buys for 2024 and beyond.
Amazon has the goods
E-commerce sales have finally started growing again after big declines following the pandemic, but that's not the only factor driving Amazon's stock higher these days. Wall Street is salivating over robust sales gains in the tech giant's cloud services segment, home to the Amazon Web Services (AWS) juggernaut. This unit accounts for well over half of Amazon's business and will likely grow in importance over the coming decades.
Growth in both the products and services divisions contributed to Amazon's most recent 13% sales increase for the third quarter. Wall Street pros are forecasting a similar bounce for the holiday quarter as revenue improves to $129 billion from $114 billion a year ago.
Amazon is cranking out far higher profits on that rising sales base, too. For example, cost cuts in recent quarters have helped cash flow turn highly positive. Amazon has generated $21 billion of free cash flow in the past year compared to a nearly $30 billion outflow a year earlier.
That success should have investors feeling confident that rising profit margins are on the way, likely helping the stock continue beating the market in 2024 and beyond. Shares aren't priced at a huge premium, either. You can own Amazon stock for less than 3 times sales compared to Shopify's price-to-sales (P/S) ratio of 15.
Okta is a digital winner
Okta is another potential steal of a growth stock, priced below 7 times sales as of late 2023. The digital identity and cybersecurity specialist is expanding its sales at an over 20% rate while taking big steps toward sustainable profitability. Enterprises prioritized these spending niches in 2022 and 2023, even as they pulled back in other IT areas, highlighting the cybersecurity industry's recession-resistant nature.
Okta isn't profitable today, but two big signals imply positive earnings are on the way. The first is free cash flow, which is on track to land at roughly 20% of sales in 2023. Executives are projecting that non-GAAP (adjusted) profit margin will improve to 17% of sales next year, too, from the expected 13% rate in fiscal 2023. For context, Okta posted a 1% loss by that metric in fiscal 2022.
Right now, the main knock against the stock is that sales growth is likely to slow significantly in the coming year, whereas Shopify has a clearer path toward maintaining an over 20% expansion rate. Still, the stock's cheaper valuation could set patient investors up for some solid returns as Okta continues winning market share in its software-as-a-service industry niche.
