During last year’s growth stock buying frenzy, several hypergrowth technology stocks surged to all-time highs. But this year, many of these stocks have crashed as rising interest rates and other macroeconomic headwinds pushed investors toward more conservative investments.
The sell off burned many eager investors who ignored the cheerful valuation. But it also presented a promising buying opportunity for more patient investors who didn’t jump on the burgeoning bandwagon. Let’s take a look at his three stocks worth revisiting. Zuscaler (ZS 3.44%), cloudflare (Net 5.16%)When wolf speed (wolf 0.68%).
Zscaler offers a “zero trust” service that treats everyone, including the CEO of an organization, as a potential threat. Unlike many other traditional cybersecurity companies that install their services via on-site appliances, Zscaler only offers cloud-native services. These services are more stable, constantly updated, and easily scale up as your organization grows.
Zscaler has grown like weeds since its initial public offering in 2018. Its customer numbers doubled from 3,250 at the end of fiscal year 2018 (ending in July of the calendar year) to over 6,700 at the end of fiscal year 2022. It has a compound annual growth rate (CAGR) of 55% from FY2018 to FY2022 and is expected to grow by 40% in FY2023.
The company is not yet profitable under Generally Accepted Accounting Principles (GAAP). However, since fiscal 2019, the company has also been profitable on a non-GAAP (adjusted) basis and expects adjusted earnings per share (EPS) to grow from 78% to 81% this year.
The stock isn’t cheap at 96 times expected earnings and 9 times next year’s sales. Zscaler faces near-term challenges as businesses curb spending to combat macro headwinds. But I believe there is still plenty of room for this fast-growing stock, and his drop of over 60% this year could present a great buying opportunity in the long run.
Cloudflare provides a cloud-based content delivery network (CDN) that accelerates the delivery of digital media on your website. This is achieved by storing cached copies of that content on a vast network of “edge” servers that are physically closer to his website visitors than the original server. It also protects these websites from bot-based cyberattacks.
Launched in 2019, Cloudflare now serves data from 275 cities in over 100 countries and serves an average of 39 million HTTP requests per second. The company’s annual revenue is at a CAGR of 51% for him from 2019 to 2021, and revenue is expected to grow another 48% to 49% this year. We also expect the company to turn profitable on an adjusted basis for the first nine months of 2022 and remain profitable for the full year.
Cloudflare is not yet profitable by GAAP measurement, and its stock price is more than 300 times its expected earnings and more than 12 times next year’s revenue, so it’s not a bargain. But it’s still a solid investment if you believe the company will continue to grow faster than its smaller rivals in the CDN space and benefit from the continued expansion of the World Wide Web.
3. Wolf speed
Wolfspeed is one of the world’s leading manufacturers of wide bandgap (WBG) semiconductors. WBG chips are made from silicon carbide and gallium nitride, allowing them to operate at higher voltages, temperatures and frequencies than traditional silicon chips. Its resilience makes it ideal for short length LEDs, lasers, 5G base stations, military radar, and electric vehicle batteries and powertrains.
The WBG market is still a small niche in the semiconductor sector, but a high growth market. Wolfspeed’s revenue fell 16% in fiscal year 2020 (ending in June of the calendar year) as it dealt with pandemic-related disruptions, but rose 12% in fiscal year 2021 and surged 42% in fiscal year 2022 Did. Analysts expect his earnings to grow 34% this year. Other large chip makers with significant exposure to macro-sensitive PC, smartphone and data center markets are suffering from slowing growth.
We also recently opened the world’s largest 200 mm silicon carbide fab, consolidating our dominance in the niche market. Because we manufacture our chips in the United States, we may benefit from the CHIPS and Science Act.
Wolfspeed isn’t yet profitable by either GAAP or non-GAAP measures, but it looks like a reasonable value at seven times its sales next year. As more companies realize the importance of his WBG semiconductors, the company’s business could experience explosive growth. Investors who recognize the growth potential today can be richly rewarded in the future.
Leo Sun has no positions in any of the mentioned stocks. The Motley Fool has positions in and recommends Cloudflare, Wolfspeed, and Zscaler. The Motley Fool’s U.S. headquarters has a disclosure policy.