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2 Smart Growth Stocks to Buy Right Now

Many companies are accelerating their digital transformation efforts in the wake of the pandemic. They are adopting new technologies and modernizing outdated processes in an effort to bring value to their customers. Of course, that doesn't happen overnight, and it isn't cheap.

Between 2020 and 2023, global enterprises will spend $6.8 trillion on digital transformation, according to the International Data Corp. That puts investors in front of a big opportunity. With that in mind, these tech companies play key roles in helping their clients adapt to digital work, and both look like smart long-term investments.

Image source: Getty Images.

1. PagerDuty

More enterprises are engaging with consumers through digital channels, meaning it's critical that websites, mobile apps, and various other technologies remain up and running at all times. PagerDuty (NYSE: PD) specializes in digital operations management, acting as a central nervous system for the modern enterprise.

Specifically, its platform sits at the center of a company's digital ecosystem, ingesting data from virtually every software-enabled system and device. PagerDuty leans on artificial intelligence to analyze those signals, helping clients predict and prevent costly downtime. When issues are identified, the platform either automatically remediates them, or it alerts the appropriate team members and provisions them with the necessary information.

As a first mover in the industry, PagerDuty has an edge over its rivals. The company has nearly 12 years' worth of data, and every data point makes its AI models better at predicting incidents and automating their resolution. That advantage has been a significant growth driver. Over the last two years, PagerDuty has posted impressive top-line results -- and while free cash flow remains negative, things are moving in the right direction.

Metric

Q2 2020 (TTM)

Q2 2022 (TTM)

CAGR

Revenue

$142.7 million

$244.2 million

31%

Free cash flow

($7.5 million)

($6.4 million)

N/A

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

PagerDuty might not be a familiar name to many investors, but during the most recent quarter the company expanded its relationship with several noteworthy customers, including Datadog, NVIDIA, and Snowflake. PagerDuty is also gaining traction outside of its core geography, as international revenue now accounts for nearly 25% of total sales, up from 20% in Q2 2018.

It's good to see the company executing on a strong growth strategy. And management puts the market opportunity at $25 billion, leaving PagerDuty with plenty of room to run in the years ahead. That's why this growth stock looks like a smart buy.

2. Salesforce

As more enterprises build out their digital presences, consumers are faced with an unprecedented number of choices for just about everything -- where they eat, where they shop, what they watch, and so much more. For that reason, it's now more important than ever that companies build and maintain strong customer relationships.

Salesforce.com (NYSE: CRM) is the best in the business when it comes to customer relationship management (CRM). Its cloud-based software platform is designed to improve sales, service, marketing, and commerce, helping each department deliver a great customer experience in every situation.

Salesforce also leans on artificial intelligence to help its clients work more productively. For instance, AI helps sales agents identify promising leads, helps service agents build smart chatbots, and helps marketing teams create personalized content.

However, if you only know one thing about Salesforce, it should be this: The company holds a 19.5% market share in the CRM industry, more than the next four competitors combined. That dominance has helped Salesforce grow quickly. In fact, the company reach $20 billion in revenue faster than any other software-as-a-service vendor in history. And despite its $252 billion market cap, this company continues to post strong double-digit growth like clockwork.

Metric

Q2 2020 (TTM)

Q2 2022 (TTM)

CAGR

Revenue

$14.7 billion

$23.5 billion

26%

Free cash flow

$3.2 billion

$5.5 billion

31%

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

Salesforce recently completed its acquisition of Slack, a business communications platform. If its past success with mergers is any indication, this move will be another stroke of genius. Salesforce acquired integration specialist MuleSoft in 2018 and analytics specialist Tableau in 2019, and both have gained traction with customers.

Now with Slack as the new interface for the Salesforce Customer 360 platform, clients can more easily connect with each other, their customers, and their partners. That's why now looks like a good time to add this growth stock to your portfolio.

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Trevor Jennewine owns shares of Nvidia. The Motley Fool owns shares of and recommends Datadog, Nvidia, PagerDuty, Salesforce.com, and Snowflake Inc. The Motley Fool has a disclosure policy.


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