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3 Top Growth Stocks That Still Look Unstoppable

It might seem counterintuitive, but when looking for great companies to add to your portfolio, seek out stocks that have already had a solid price appreciation. Winning sports teams tend to keep on winning, and companies are no different. With that in mind, we asked three Motley Fool contributors to highlight one stock that's already a tremendous run so far this year that they'd buy today.

They came up with Global-E Online (NASDAQ: GLBE), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), and Datadog (NASDAQ: DDOG).

Image source: Getty Images.

Global-E Online: Making global e-commerce sales easier

Danny Vena (Global-E Online): There's little doubt e-commerce has a long runway ahead. Online spending surged in the U.S. last year, growing to 19.6% of total retail sales, up 32% year over year. While growth has slowed in 2021, the trajectory is clear.

One of the headwinds for merchants, however, is dealing with the complexities of cross-border sales. Having the seller in one country and the buyer in another raises a whole litany of issues that most merchants don't have the time or the bandwidth to deal with. That's where Global-E Online comes in. The company handles many of the challenges and complexities that come with international selling, leaving the merchant to go about their daily routine.

The list of complications tied to cross-border sales is extensive: foreign language translation, inter-country regulatory compliance, currency exchange, customs and duties, and even preferences in local payment methods. Global-E Online makes quick work of many of the hurdles associated with international transactions.

The proof is in the pudding. For the second quarter, Global-E delivered revenue that grew 92% year over year, while its gross merchandise volume soared 95%. Gross margin expanded to 36%, up from 32.4% in the prior-year quarter. Excluding the amortization expense related to the warrants held by Shopify, Global-E swung from a loss to a profit, albeit a modest one.

As a result of its robust performance, Global-E raised its full-year guidance. The company now expects 2021 revenue of $1.36 billion at the midpoint of its guidance, up tenfold from revenue of $136 million in 2020.

Investors clearly see the opportunity and have driven Global-E Online stock up by more than 180% since its initial public offering in May.

If you're still not convinced, don't take my word for it. Prior to the IPO, the company announced that e-commerce platform provider Shopify purchased 7.75 million shares of Global-E Online stock, amounting to a 6.5% stake in the company. Shopify took it a step further, acquiring warrants that gave the company the right to buy an additional 11.85 million shares of stock over the ensuing 24 months.

The pair also entered into a partnership agreement that made Global-E Online the exclusive provider of cross-border services for Shopify merchants. The initial term of the agreement extends to April 2024, giving the company plenty of time to make its case to both merchants and investors.

Global-E Online has established itself as the premier provider of end-to-end cross-border services, as evidenced by the keen interest shown by Shopify. Global-E cited research by Forrester that suggests that the cross-border e-commerce market could top $736 billion by 2023. That the company's GMV reached just $774 million last year helps illustrate the magnitude of its opportunity.

Having the world's largest e-commerce platform provider as a mentor won't hurt either.

Image source: Getty Images.

Alphabet knows the ABCs of driving growth

Will Healy (Alphabet): Google parent Alphabet may have attained a $1.9 trillion market cap, but that does not mean it has become too large to produce massive growth. Alphabet has become best known for its dominant search engine, video site YouTube, and the Android operating system. Moreover, Google Cloud's 8% market share in cloud infrastructure spending lags only Amazon Web Services and Microsoft's Azure, according to Canalys.

The aforementioned apps and the Google Cloud drive more than 99% of its current revenue. However, after seeing that, one might forget that Alphabet also owns multiple subsidiaries that could add to growth levels.

Biotech company Calico, AI-focused DeepMind, and Verily Life Sciences are among these companies. Nonetheless, autonomous driving technology company Waymo has appeared to draw more attention, likely for its valuation. Financial data company Pitchbook valued Waymo at $31 billion in 2020. That would give Waymo a value equivalent to around 1.7% of Alphabet's market cap. Since Google drives almost all of Alphabet's revenue, it implies that Waymo and possibly other subsidiaries have locked up significant value. And since self-driving cars are here already, Waymo could boost revenue growth sooner rather than later.

As conditions stand now, revenue growth does not look like a concern. In the first half of 2021, Alphabet reported revenue of $117 billion, 47% more than in the same period in 2020. During that time, net income rose 164% to $36 billion. This increase occurred as its costs increased by only 25%. Also, an additional $7.6 billion in income from gains on equity securities more than covered the $6.8 billion in income taxes, an expense that more than tripled compared with the first six months of 2020.

Given this surge, one can understand why the stock has risen by 60% so far in 2021. Also, thanks to increasing profits, its P/E ratio of 30 has not changed significantly during that time. Even though Alphabet did not offer forward guidance, the multiple appears cheap considering the triple-digit income growth. And between its existing Google businesses and the prospects for its subsidiaries, the long-term gains are not likely to stop anytime soon.

Image source: Getty Images.

Datadog: Chasing the clouds

Brian Withers (Datadog): With its stock up over 50% so far this year, Datadog is a growth investor favorite. But its run is nowhere near done as this cloud-based observability platform is executing at a high level and investing in future growth. Let's take a look at why you'll want to bring this young pup home with you to own for the long term.

It's hard to ignore the stellar growth numbers the company is posting. Not only is the top line growing at breakneck speed, but the company is also winning large customers hand over fist. But probably what's most exciting to investors is the remaining performance obligations that represent the value of all open contracts. RPO has grown at triple digits year over year to a massive $583 million. That means customers are signing larger and longer contracts.

Metric

Q2 2020

Q1 2021

Q2 2021

Change (QOQ)

Change (YOY)

Revenue

$140 million

$199 million

$234 million

18%

67%

>$100K ARR customers

1,015

1,437

1,610

12%

59%

Remaining performance obligations

$244 million

$464 million

$583 million

26%

139%

Data source: Datadog. QOQ = quarter over quarter. YOY = year over year. ARR = annural recurring revenue.

But the secret of Datadog's success is its sticky ecosystem. Seventy-five percent of customers are using two or more modules, but 28% are using four or more, up from 15% from the last Q2. Today with 16,400 customers and the top 1,610 making up 80% of its annual recurring revenue, the company has plenty of opportunity to expand with the customers it already has.

Lastly, the company is not resting on its past success. Two new products were released in the quarter, Cloud Security Posture Management and Cloud Workload Security, bringing the total number of tools in the Datadog suite to 11. As the company continues to invest in its platform, it makes it more attractive to customers to expand their footprint with this observability leader.

The stock looks expensive at a price-to-sales ratio of 59, but if you are interested in a long-term play on the cloud, this dog could do the trick for you. This young company still has plenty of growth ahead before it becomes full-grown, and you might want to consider making a nice warm place for this puppy in your portfolio.

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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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Brian Withers owns shares of Datadog and Shopify. Danny Vena owns shares of Alphabet (A shares), Amazon, Datadog, Global-e Online Ltd., Microsoft, and Shopify and has the following options: long January 2023 $1,140 calls on Shopify and long January 2023 $1,160 calls on Shopify. Will Healy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Datadog, Microsoft, and Shopify. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.


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