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2 Monster Growth Stocks in the Making

Even the best stock pickers make mistakes, but those mistakes tend to matter less in the context of a diversified portfolio. If you do your research and buy high-quality stocks, chances are you'll have some big winners in the mix. And a few big winners can erase all your losses and then some. In fact, the Pareto Principle states that 20% of a portfolio will typically generate 80% of the total returns.

With that in mind, these companies benefit from massive market opportunities, and both look like monster growth stocks in the making.

Image source: Getty Images.

1. Coupa Software

Coupa Software (NASDAQ: COUP) helps companies spend money more efficiently. Specifically, its business spend management (BSM) platform connects clients (i.e. buyers) with over seven million suppliers worldwide, allowing them to track and control expenses, optimize supply chains, and realize cost savings.

At the heart of Coupa's BSM platform are four modules: procure, invoice, expense, and pay. Collectively, these applications help clients purchase goods and services, digitize invoices, manage employee expenses, and consolidate payments through a single platform. That value proposition has already drawn 2,000 customers to Coupa, including Amazon and Walmart, two of the largest retailers in the world.

More broadly, Coupa's platform has powered $2.8 trillion in transactions since the company was founded, and each of those events creates data. Coupa leans on artificial intelligence to unlock value in that data, surfacing spending insights and supply chain risk management strategies for its clients. In fact, Coupa is the only BSM product on the market that provides real-time prescriptive insights.

However, Coupa also has other another key advantage. Most BSM suites require users to manually process payments through enterprise resource planning (ERP) platforms, but Coupa has its own deeply integrated payments engine: Coupa Pay. This simplifies the procurement process for users, eliminating the additional labor required to send payment files to ERP systems.

If you're still not sold on the company's potential, consider this: Research company Gartner has recognized Coupa as the industry leader, citing a greater ability to execute and stronger vision than any of its rivals. And that value proposition has translated into strong financial growth.

Metric

Q2 2019 (TTM)

Q2 2022 (TTM)

CAGR

Revenue

$219.1 million

$642.7 million

43%

Free cash flow

$21.7 million

$101.2 million

67%

Source: Ycharts. TTM = trailing-12-months. CAGR = compound annual growth rates. Note: Q2 2022 ended July 31, 2021.

Looking ahead, management believes Coupa's BSM platform addresses the needs of 100,000 potential customers, comprising a $94 billion addressable market -- more than 100 times its trailing-12-month revenue. That leaves this company with plenty of room to grow its business.

Here's the bottom line: Coupa has a strong competitive position, a massive market opportunity, and a history of strong financial performance. But its market cap sits at just $18 billion, while rivals like SAP and Oracle have market caps of $167 billion and $238 billion, respectively. With that in mind, I think Coupa can grow tenfold over the next decade. That's why it looks like a monster stock in the making.

2. Docebo

Docebo's (NASDAQ: DCBO) mission is to modernize corporate learning. Its platform helps clients train employees and partners; this includes tools that enable administrators to organize content, deliver training courses, track certifications, and access reporting. More importantly, Docebo was one of the first companies in the e-learning space to infuse its software with artificial intelligence.

Currently, the platform leans on AI to automate administrative tasks and personalize learning content. This allows administrators to spend their time on more complex problems, and it makes the learning experience more engaging. That's important, because more enterprises are seeing a correlation between ongoing learning opportunities and employee productivity, satisfaction, and retention.

Traditional learning management systems were built to deliver formal content, but this type of training accounts for just 10% of total learning. By comparison, employees typically learn 70% of the necessary information from informal, on-the-job experience (i.e. social learning). To that end, Docebo's platform incorporates tools to promote positive employee interactions and collaboration.

Financially, this young tech company has grown at an impressive pace over the past year, and it's already free-cash-flow positive.

Metric

Q2 2020 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$51.0 million

$82.2 million

61%

Free cash flow

($8.3 million)

$3.3 million

N/A

Source: Ycharts. TTM = trailing-12-months. CAGR = compound annual growth rate.

As of the most recent quarter, Docebo had 2,485 customers, up 29% from the prior year. And while the company doesn't report retention on a quarterly basis, Docebo's net retention did reach 108% in 2020, up from 105% in 2019. This indicates that the average customer is spending a little more each year.

Here's the bottom line: Docebo puts its addressable market at $30 billion by 2025. Given its strong financials and massive market opportunity, I think this $2.8 billion business could grow tenfold, reaching a market cap of $28 billion by 2031. That's why Docebo looks like a monster stock in the making.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Amazon and Coupa Software. The Motley Fool owns shares of and recommends Amazon, Coupa Software, and Docebo Inc. The Motley Fool recommends SAP SE and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.


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