Growth is oxygen. But when it evaporates, the consequences can be extreme - ask anyone who bought Cisco in the Dot-Com Bubble (Nvidia?) or newer investors who lived through the 2020 to 2022 COVID cycle.
Deciphering which businesses can sustain their high growth rates is a challenge for even the most seasoned professionals, which is why we started StockStory. On that note, here are two growth stocks expanding their competitive advantages and one that could be down big.
One Growth Stock to Sell:
Roku (ROKU)
1-Year Revenue Growth: +18%
Spun out from Netflix, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Why Are We Cautious About ROKU?
- Preference for prioritizing user growth over monetization has led to 2.4% annual drops in its average revenue per user
- EBITDA margin fell by 10.5 percentage points over the last four years as it prioritized growth over profits
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 32.8% annually
Roku is trading at $79.60 per share, or 40.2x forward EV-to-EBITDA. To fully understand why you should be careful with ROKU, check out our full research report (it’s free).
Two Growth Stocks to Watch:
JFrog (FROG)
1-Year Revenue Growth: +22.5%
Named after the founders' affinity for frogs, JFrog (NASDAQ: FROG) provides a software-as-a-service platform that makes developing and releasing software easier and faster, especially for large teams.
Why Are We Fans of FROG?
- Billings have averaged 25.8% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Net revenue retention rate of 117% demonstrates its ability to expand within existing accounts through upsells and cross-sells
- Strong free cash flow margin of 25.2% enables it to reinvest or return capital consistently
JFrog’s stock price of $36.98 implies a valuation ratio of 8.1x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Dynatrace (DT)
1-Year Revenue Growth: +19.8%
Founded in Austria in 2005, Dynatrace (NYSE: DT) provides companies with software that allows them to monitor the performance of their full technology stack, from software applications to the infrastructure they run on.
Why Could DT Be a Winner?
- ARR growth averaged 18.9% over the last year, showing customers are willing to take multi-year bets on its offerings
- Software is difficult to replicate at scale and leads to a stellar gross margin of 82.2%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
At $54.91 per share, Dynatrace trades at 9.1x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
