Investing in growth stocks is ideal for those with a high-risk appetite. Basically, growth investing is rewarding during bull markets, but investors should be prepared for significant pullbacks when sentiment turns bearish.
Here, you invest in companies that are growing revenue and earnings at an enviable pace, allowing them to deliver outsized gains to shareholders over time.
I have identified two quality growth stocks in Docebo (TSX:DCBO) and Datadog (NASDAQ:DDOG) that are positioned to deliver market-beating returns to investors in the upcoming decade.
Is Datadog stock a good buy right now?
Valued at US$39 billion by market cap, Datadog stock trades 40% below all-time highs, despite surging 61% in the first 11 months of 2023. Operating in the analytics and cloud observability segment, Datadog increased revenue by 25% year over year to US$548 million in Q3, above its initial guidance of US$523 million. It also expects sales to surge 17% sequentially to US$568 million in Q4.
It’s evident that Datadog continues to thrive, despite a sluggish macro environment and a slowdown in enterprise software spending. Similar to other tech stocks, Datadog has also focused on lowering its cost base amid rising interest rates and inflation to boost profit margins.
It reported a net income of US$22.6 million in Q3, compared to a net loss of US$26 million in the year-ago quarter. Moreover, free cash flow rose to US$147 million, indicating a healthy margin of 27%.
Analysts tracking DDOG stock expect it to improve adjusted earnings from US$0.98 per share in 2022 to US$1.82 per share in 2024. Priced at 65 times forward earnings, DDOG stock is quite expensive, but quality growth stocks generally command a premium valuation.
Analysts expect Datadog’s adjusted earnings to rise by 33.3% annually in the next five years, making it a top investment choice right now.
What is the target price for Docebo stock?
An enterprise facing e-learning platform, Docebo is valued at valued at US$1.9 billion by market cap. In Q3 of 2023, the Canadian company reported revenue of US$46.5 million, an increase of 26% from the year-ago period.
Subscription revenue stood at US$43.6 million, accounting for 94% of total sales. A subscription-based business model allows Docebo to generate predictable cash flows across business cycles.
Docebo ended Q3 with a gross margin of 81%, allowing it to report a net income of US$5 million or US$0.15 per share, compared to US$1.5 million or US$0.04 per share in the year-ago period.
Its annual recurring revenue, or ARR, rose by 26% to US$181.8 million, while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose almost 700% to US$4.5 million, indicating a margin of 9.7%.
The Docebo platform is used by 3,679 customers, up from 3,245 customers in the year-ago period. Its average contract value per customer also rose more than $49,416 in Q3.
It seems Docebo continues to expand its customer base and customer spending, allowing the company to grow revenue at a steady pace.
Priced at 75.3 times forward earnings, DCBO stock trades at a discount of 30% to consensus price target estimates. DCBO stock has already returned 281% to shareholders in the last four years.
