Investors often gravitate toward growth stocks in the pursuit of maximum returns. While blue-chip stocks offer a safer approach, growth-oriented investments contain more risk but far more upside.
Some growth stocks generate more returns in one year than the S&P 500 can muster in five years. When growth stocks gain momentum, they can soar quickly. Some growth stocks look poised to reward investors even more as their respective companies gain more market share and post compelling financials.
Investors looking for growth stock ideas may want to consider these seven top picks.
HubSpot (HUBS)
HubSpot (NYSE:HUBS) is a customer relationship management (CRM) tool that offers software subscriptions for any budget.
The company offers free tools and has a starter subscription that costs $20/mo. The company also has an enterprise plan that starts at $3,600/mo. Businesses that add more contacts to their email lists will see their monthly payments go up over time.
HubSpot frequently posts high revenue growth and didn’t disappoint in the third quarter of 2023. During that quarter, revenue increased by 26% year-over-year and GAAP operating losses narrowed from $32.2 million in Q3 2022 to $20.4 million in Q3 2023.
The company’s average value per customer only increased by 3% year-over-year but it is easier to look over this low growth due to the company’s ability to attract customers. HubSpot reached 194,098 customers at the end of September which marks a 22% improvement from the end of September 2022.
HubSpot produces free resources and guides that often rank at the top of Google search results for highly profitable keywords. The company has a large presence on search engines and uses inbound marketing strategies to drum up more business.
Semrush (SEMR)
Semrush (NYSE:SEMR) is another software that uses a recurring revenue model to reward shareholders. The company offers top-class SEO tools that help businesses discover promising keywords. Businesses can use Semrush to dive well beyond keyword research to discover opportunities to rank higher on search engines.
Shares have only gained 6% over the past five years but came to life in 2023. The stock has surged by 58% over the past year as elevated revenue growth and a recent switch to profitability excited investors.
Semrush posted 20% year-over-year revenue growth in the third quarter of 2023. The company is currently sitting on $322.8 million in annual recurring revenue which is up by 21% year-over-year.
The software has approximately 106,800 paying customers. Some of these customers pay over $10,000 annually for Semrush. That customer base experienced 20% year-over-year growth. Leadership felt confident enough to significantly raise its non-GAAP net income guidance for the fourth quarter. The previous guidance was $2.0 million to $4.0 million. Semrush raised its range to $9.0 to $11.0 million.
Coursera (COUR)
Coursera (NYSE:COUR) is an online education platform filled with courses from universities, tech companies, and corporations. Students can receive degrees and certificates that help them unlock new career opportunities. It’s also possible to explore courses in many subjects that aren’t related to career growth.
Students focused on career development can choose from many paths on Coursera. The platform displays the median salaries across all occupations and for the career opportunity you are considering. Coursera primarily makes money through monthly subscriptions and a percentage of tuition fees for students who enroll in a university through Coursera.
The business model has worked well for Coursera. The company achieved 21% year-over-year revenue growth in the third quarter of 2023 while narrowing net losses. Coursera has over 136 million students using its platform.
The company already has good traction but can generate higher returns for shareholders as more people question if college is worth it. Coursera offers a more affordable option that can still result in a good career and high pay. The company can become a major disruptor in the education industry.
Sprout Social (SPT)
Sprout Social (NASDAQ:SPT) is a social media management software that helps businesses schedule posts, run ad campaigns, receive competitive reports, and tap into other features. Sprout Social had a flat 2023 and is only up by 6% over the past year. Shares have surged by 235% over the past five years which demonstrates strong interest in the stock.
Despite the long-term growth, Sprout Social currently trades more than 60% below its all-time high in September 2021. Investors got carried away during a strong year for growth stocks but haven’t bid up the stock price that much since 2023.
The company posts enticing top-line growth but can use some work on its net income. Sprout Social reported 31% year-over-year revenue growth in the third quarter of 2023. Annual recurring revenue reached $359.5 million which represents a 33% year-over-year increase. The company’s total remaining performance obligations grew by 67% year-over-year and are almost triple the company’s Q3 2023 revenue.
The primary concern is the company’s $23 million GAAP net loss which is higher than the $13.9 million GAAP net loss from the same time last year. The company’s customer base was slightly down year-over-year, but a significant growth in the number of high-paying customers offset the trend.
Customers contributing over $10,000 in annual recurring revenue increased by 33% year-over-year. The company also experienced a 49% year-over-year jump in customers contributing over $50,000 in annual recurring revenue. Sprout Social is setting its eyes on customers with bigger budgets which can lead to profitability sooner.
Visa (V)
Visa (NYSE:V) makes money each time someone uses one of their credit or debit cards to complete a purchase. There are over 2.9 billion Visa cards worldwide which gives Visa a large customer base. People use credit and debit cards for all types of purchases due to their convenience. In many cases, these cards are the only way to buy a good or a service.
The strong popularity of credit and debit cards has turned Visa into a $500 billion juggernaut that can reach a $1 trillion valuation within a few years. The company recently posted 11% year-over-year revenue growth in the fourth quarter of fiscal 2023. GAAP net income grew by 19% year-over-year and helped the company achieve an impressive 54% net profit margin.
The company’s reliable profit margins and dominance within the credit and debit card industry have resulted in a 19% gain over the past year. Visa stock has appreciated by 88% over the past five years.
Axcelis (ACLS)
The artificial intelligence boom delivered high gains for many participants in the industry. Some companies produce artificial intelligence tools while others create the chips that power AI.
Axcelis (NASDAQ:ACLS) benefitted from the AI boom without producing chips or creating heavily-used AI software. The company makes revenue through its ion implantation technology which results in more optimized chips. Chipmakers turn to Axcelis for assistance with the integrated circuit manufacturing process.
The company soared upon the artificial intelligence hype but faltered in the second half of 2023. Shares are up by 28% over the past year. The company’s 550% gain over the past five years is more impressive. The company’s financials, market cap, and valuation suggest more of the latter.
Axcelis is valued at below $4 billion and has a 17 P/E ratio. Revenue reached $292.3 million in Q3 2023 which represents a 27.6% year-over-year improvement. Net income jumped by 63.7% year-over-year.
The company’s run to $200/share caught investors by surprise and warranted a correction. However, the stock has fallen by over 40% since reaching its all-time high. A correction may have been warranted, but a crash doesn’t make sense. The company continues to post good financials and has a compelling growth opportunity. The low valuation is unlikely to last for long.
Monday (MNDY)
Monday (NASDAQ:MNDY) is a cloud-computing platform that helps businesses build work management tools and software applications for their objectives. Over 186,000 customers use Monday’s software to operate more efficiently.
The stock initially did well after its IPO due to the high demand for tech growth stocks in 2021. However, the balloon popped in 2022 and the stock lost more than half of its value. The significant drop presented an opportunity as shares are up by 71% over the past year.
Monday continues to deliver impressive revenue growth which hasn’t been a problem for the company. In the third quarter of 2023, Monday increased its revenue by 38% year-over-year. The company’s base of $50,000 annual recurring revenue customers grew by 57% year-over-year. Strong growth for more expensive solutions can help Monday reward shareholders more often in the future.
The most exciting development from Monday’s third-quarter report was the recent shift to profitability. The company reported $7.5 million in net income compared to net losses. Software companies often scale up profits quickly once they make the switch. Monday’s leadership predicts another quarter of a solid top-line increase, as fourth-quarter guidance calls for 31%-32% year-over-year revenue growth.
— Marc Guberti
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Source: Investor Place