Equity markets continue to test the patience of investors as most indices remain volatile amid several macro challenges. Companies across the board have seen valuations fall off a cliff as investors worry about the deceleration in revenue growth and a fall in profit margins in the near term.
But the time is ripe to put your capital to work and buy shares of companies with strong underlying businesses to benefit from outsized gains once market sentiment improves. Here are three such explosive growth stocks you can buy in 2023.
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Absolute Software stock
A company that provides endpoint resilience solutions, Absolute Software (TSX: ABST) is a small-cap stock valued at a market cap of $575 million. Absolute Software claims it is the only undeletable defence platform in the industry embedded in over 600 million devices, providing its base of enterprise clients with visibility and control in terms of endpoint security.
Absolute Software has more than doubled its sales from $99 million in fiscal 2019 to $197 million in fiscal 2022 (ended in June). Bay Street expects its sales to touch $360 million by fiscal 2024. Its top-line expansion will allow Absolute Software to narrow its adjusted losses from $0.65 per share in fiscal 2022 to $0.21 per share in fiscal 2024.
ABST stock is priced at less than two times forward sales, which is not too steep for a growth stock part of a rapidly expanding addressable market. Analysts remain bullish on ABST stock and expect it to gain 80% in the next 12 months.
Datadog stock
One of the fastest-growing tech companies in the world, Datadog (NASDAQ: DDOG) provides real-time visibility across the technology stack of enterprises. Datadog continues to expand its portfolio of products and solutions, which results in strong customer engagement and retention rates.
In 2022, Datadog increased sales by 63% year over year to US$1.7 billion, while operating cash flow grew 46% to US$418 million. Unlike several other tech stocks, Datadog reports consistent profits and is on track to report adjusted earnings of US$1.50 per share in 2024, up from US$0.98 per share in 2022.
So, DDOG stock is priced at eight times 2024 sales and 44 times forward earnings, which might seem expensive. But quality growth stocks command a premium and have the potential to generate market-beating gains over time.
Docebo stock
The final growth stock on my list is Docebo (TSX: DCBO), a Canada-based enterprise-facing e-learning company. Docebo offers a wide range of cloud-based training solutions that allow companies to train their employees effectively. The worldwide shift towards the work-from-home trend should also act as a long-term tailwind for Docebo and its peers.
Since 2016, Docebo has expanded its customer base at an enviable pace, while its average contract value has jumped 300% in this period. This expansion in contract value drove Docebo’s sales higher, from US$41.4 million in 2019 to around US$150 million in 2022.
Docebo generates over 90% of its revenue from subscriptions, allowing it to derive cash flows across market cycles. Down 57% from all-time highs, Docebo stock is priced at a discount of 40% to consensus price target estimates.
