Investors looking to derive outsized gains should hold quality growth stocks in their equity portfolios. In the last 15 months, valuations of growth stocks across sectors have fallen off a cliff. But with the lower multiple investors can buy the dip and enjoy outsized gains once the markets recover.
Keeping these factors in mind, here are two growth stocks you can buy for $5,000 right now.
Datadog stock
Datadog (NASDAQ: DDOG) offers a monitoring and security platform for cloud applications. Its software-as-a-service platform integrates and automates capabilities such as infrastructure monitoring, application performance monitoring, and log management. These services provide a unified experience for enterprise customers.
Datadog’s portfolio of products and services is used by companies across industries and sectors. These products aim to accelerate the digital transformation processes of enterprises while enabling cloud migration and improving collaboration between corporate verticals.
Datadog reported revenue of US$1.7 billion in 2022, an increase of 63% year over year. Its operating cash flow and free cash flow stood at US$418 million and US$354 million, respectively.
The company expects revenue to increase to almost US$2.1 billion in 2023 and estimates the total addressable market to expand from US$41 billion in 2022 to US$62 billion in 2026. This market growth provides Datadog with enough room to drive top-line growth.
Valued at a market cap of US$22.7 billion, Datadog stock is priced at more than 10 times forward sales. Yet, owing to its widening customer base and profit margins, as well as an increase in platform spending, the stock can command a premium valuation.
Datadog ended 2022 with more than 23,200 customers, up from just 5,400 customers in 2017. As demand grows, Datadog has been able to increase sales from US$101 million in 2017 to US$1.7 billion in 2022. Around 317 customers spend more than US$1 million on the Datadog platform annually. Comparatively, the number of customers with annual recurring revenue of more than US$100,000 is 2,780, up from 236 in 2017.
Down 66% from all-time highs, DDDOG stock is priced at a discount of 50% to consensus price target estimates.
WSP Global stock
A professional services consulting company, WSP Global (TSX: WSP) is valued at a market cap of $21.5 billion. It plans and manages projects for public and private clients across verticals such as rail, aviation, tunnels, water, and urban infrastructure.
The TSX stock went public in January 2014 and has since returned 610% to shareholders in dividend-adjusted gains. In this period, the TSX index returned less than 100%.
Despite a sluggish economic environment, WSP grew sales by 16% year over year and improved adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 70 basis points in 2022.
WSP Global reported net revenue of $9 billion while its backlog stood at $13 billion, an increase of 25% year over year. Analysts expect WSP to increase net sales to $10.5 billion in 2023, while adjusted earnings per share are forecast to rise 14.6% to $6.6.
So, WSP stock is priced at two times forward sales and 26 times forward earnings, which is reasonable. Due to the consistent profits it generates, WSP also pays shareholders annual dividends of $1.50 per share, translating to a yield of 0.9%.
WSP stock is priced at a discount of 10%, given consensus price target estimates.
