Some investors may be wary of purchasing growth stocks that enjoyed a strong share price surge. However, the share price alone may not tell the full picture. Businesses that witness strong share price gains normally report strong earnings coupled with healthy business prospects that give investors the confidence that more growth is in store.
Hence, you need to assess the underlying business to determine if it can still enjoy many more years of solid growth. Stocks that had a stellar run could still go on to register significant share price gains on the back of improved financial numbers and bright prospects. The key is to ensure the company has a strong competitive position that it can maintain, catalysts to sustain its growth trajectory, and a large total addressable market that can provide steady increases in market share and profits.
Here are three stocks that recently saw their share prices soar, but still constitute attractive buys.
Image source: Getty Images.
Meta Platforms
Meta Platforms (META +2.32%) is a social media behemoth that owns WhatsApp, Instagram, and Facebook. The company saw its share price climb 48% in the past year and recently hit its all-time high of $740. It's not surprising when you consider that Meta Platforms saw its revenue and net income go from strength to strength, as shown in the table below.
| Metric | 2022 | 2023 | 2024 |
|---|---|---|---|
| Revenue | $116.609 billion | $134.902 billion | $164.501 billion |
| Operating income | $28.944 billion | $46.751 billion | $69.380 billion |
| Net income | $23.200 billion | $39.098 billion | $62.360 billion |
Data source: Meta Platforms. Fiscal years end Dec. 31.
Although revenue increased by 41% from 2022 to 2024, net income nearly tripled over the same period, showcasing the strong operating leverage that Meta Platforms' business enjoys. In addition, the social media company is also a free cash flow generation machine. The year 2022 saw $19.3 billion of free cash flow generated, and this steadily increased to $54.1 billion by 2024. The icing on the cake: Meta Platforms also upped its quarterly dividend by 5% year over year to $0.525 after paying out its first-ever dividend of $0.50 a year ago.
NASDAQ: META
Key Data Points
Meta Platforms also reported solid operating numbers. Family daily active people, a measure of the number of users that use at least one of its products, rose 5% year over year to 3.35 billion at the end of 2024. These customers are also delivering more revenue, with the family average revenue per person climbing 15.6% year over year to $14.25. Although the company declined to provide a revenue outlook for 2025, management is confident that investments made in Meta Platforms' core business last year should be fruitful and lead to strong revenue growth throughout this year.
There could be more growth to come as Meta Platforms commits as much as $65 billion to expand its artificial intelligence (AI) infrastructure, according to CEO Mark Zuckerberg. In line with this plan, the company will hire for AI roles and build a massive data center of more than two gigawatts. Eventually, the idea is to bring one gigawatt of computing online and for AI to be infused into all its products, which should drive further usage and customer stickiness. Other plans include investments into AI-powered humanoid robots to assist with physical tasks and upgrades for its Oakley-branded smart glasses. Possible products slated for release include new high-end glasses with a built-in display along with a smartwatch and earphones that can compete with Apple's products. These are exciting times for Meta Platforms and still seem like early days for the company considering its multiyear growth potential.
Sea Limited
Sea Limited (SE +1.83%) is an Asian technology company with three key divisions: e-commerce (under the Shopee brand), digital entertainment (under the Garena brand), and digital financial services (under SeaMoney). Sea Limited's share price may have nearly tripled in the past year, but the business still shows strong growth potential. The company saw its revenue record steady increases from 2021 to 2023, while its bottom line went from losses to profits over the same period, as shown below.
| Metric | 2021 | 2022 | 2023 |
|---|---|---|---|
| Revenue | $9.955 billion | $12.450 billion | $13.064 billion |
| Operating income | ($1.583 billion) | ($1.488 billion) | $224.778 million |
| Net income | ($2.047 billion) | ($1.651 billion) | $150.726 million |
Data source: Sea Limited. Fiscal years end Dec. 31.
The business also generated positive operating cash flow in two of the three years and generated a positive free cash flow of $1.8 billion in 2023. Among the various e-commerce players in Southeast Asia, Shopee maintained pole position in 2023 with an impressive 48% market share. Sea Limited's Garena also had one of the world's most downloaded games in the third quarter of 2024 in Free Fire and is expanding to new regions such as North Africa.
NYSE: SE
Key Data Points
Sea Limited continued to report a strong set of earnings for the first nine months of 2024. Revenue jumped 25.6% year over year to $11.8 billion while operating income climbed 26.7% year over year to $356.4 million. Net income was 20.5% lower year over year but was affected by one-off items such as investment losses and a net gain on debt extinguishment. Excluding these items, Sea Limited's net income for the period would have been 18.4% higher than the previous corresponding period at $362.1 million. Free cash flow also improved, coming in at $2 billion for the first nine months of 2024 and is already higher than the free cash flow churned out for the whole of 2023.
All three of the company's divisions recorded healthy operating metrics that demonstrated continued growth. Shopee saw gross orders for the third quarter of 2024 rise 27.3% year over year to 2.8 billion with gross merchandise value rising by almost 25% year over year to $25.1 billion. Garena did well, registering 628.5 million quarterly active users, a rise of 15.5% over the previous year. Quarterly paying users did even better, climbing 23.2% year over year to end the period at 50.3 million. In addition, Free Fire gained traction in attracting new players, with the number of new users who downloaded and played the game surging by 25% year over year. For SeaMoney, its loan book shot up 70.4% year over year to $4.6 billion while its nonperforming loans ratio dipped to 1.2% from 1.4% a year ago. This ratio measures the proportion of loans that go bad after 90 days. With all three of its divisions powering on, investors can expect better financial numbers from Sea Limited in the years to come.
Cloudflare
Cloudflare (NET 2.36%) is a cybersecurity company that operates a cloud platform to enable better security and threat protection for its customers. The business is riding the wave of digitalization and its share price has shot up 53% in the past year. However, investors should recognize that there is still significant potential for the stock to do well, based on the growth in Cloudflare's revenue and operating cash flow as shown below.
| Metric | 2021 | 2022 | 2023 |
|---|---|---|---|
| Revenue | $656.426 million | $975.241 million | $1.297 billion |
| Operating cash flow | $64.648 milion | $123.595 million | $254.406 million |
| Free cash flow | ($43.090 million) | ($39.769 million) | $119.464 million |
Data source: Cloudflare. Fiscal years end Dec. 31.
Revenue nearly doubled from 2021 to 2023 while operating cash flow has nearly quadrupled over the same period. The business also started to generate free cash flow in 2023.
NYSE: NET
Key Data Points
Cloudflare reported a strong set of results to end off 2024. Revenue leapt 28.8% year over year to $1.7 billion, with gross margin improving from 76.3% in 2023 to 77.3% for 2024. The business continued to generate higher free cash flow of $167 million, nearly 40% higher than the $119.5 million churned out a year ago. Customers are also spending more, as evidenced by a surge in customers with more than $100,000 in annualized revenue from 2,042 in 2022 to 3,497 in 2024.
The business has a structured plan for further growth. The first step involves the acquisition of new customers through field sales and the expansion of channel partnerships. At the same time, Cloudflare will expand relationships with existing customers to increase their usage by adding products and getting them to spend more. In the spirit of innovation, the company will develop new products to allow it to expand into new markets and increase its total addressable market (TAM). Speaking of TAM, management estimates that Cloudflare's TAM stood at $176 billion in 2024 and is poised to grow to $222 billion by 2027. With such a large TAM and a solid growth strategy, coupled with tailwinds led by digitalization, Cloudflare should have confidence in steadily growing its revenue and free cash flow.
