2 high-growth stocks that could become unstoppable

soft (NYSE: CHWY) and Twilio (NYSE: TWLO) Investors are having a terrible year, as both companies’ share prices have plunged despite the impressive growth they have reported so far in 2021.

However, this may present an opportunity for savvy investors to buy two fast growing companies at relatively cheap valuations before they burst. Let’s take a look at why Chewy and Twilio’s fortunes could be reversed and help these two growth stocks go unstoppable.

CHWY data by YCharts

1. Soft

The drop in Chewy’s stock price is a bit of a surprise given that it is an online pet food and supply retailer, a market that has been growing rapidly since the novel coronavirus pandemic. Chewy maintained momentum even after the peak of the pandemic, as evidenced by its second quarter of fiscal 2021 results, released on September 1, 2021.

The company’s revenue grew nearly 27% year-over-year to $ 2.16 billion thanks to larger customer base and higher spending. Chewy had 20.1 million active customers at the end of the quarter, a jump of 21.1% from the period a year earlier. Meanwhile, the company’s net sales per active customer rose 13.5% year-over-year to $ 404, which was the first time in the company’s history that the metric has broken the benchmark. $ 400.

This combination of an increase in Chewy’s customer base and an increase in spending by its active customers is not surprising, as more people are buying pet food and supplies online in the States. -United. Market research firm Packaged Facts estimates that 30% of sales of pet products are online in 2021, up from just 8% in 2015. The pandemic has accelerated the uptake of online shopping for pet products and supplies. pets, which is why Packaged Facts predicts that e-commerce could account for 53% of the total sale of pet products. space by 2025.

Man looking at a line graph on a laptop.

Image source: Getty Images.

This would translate into a healthy addressable opportunity for Chewy, as the overall US pet retail market is expected to reach nearly $ 95 billion in revenue by 2025. More importantly, Chewy is one of the main players in this space. A Packaged Facts survey shows that 41% of customers surveyed who buy their products online do so from Chewy.

As such, Chewy can continue to benefit from secular growth thanks to its solid position in a rapidly growing sector. Additionally, it’s worth noting that the strong customer base that Chewy has built up so far will fuel its long-term growth through higher spending. This is because the company’s customers increase their spending on its offerings over time. Chewy’s management pointed out in a letter to shareholders earlier this year that “customers historically spend over $ 400 with us in their second year, up from around $ 700 in their fifth year and nearly $ 900 in their second year. during their ninth year “.

All of this explains why Chewy is expected to see impressive growth in both sales and results in the years to come.

Fiscal year

Income orientation

EPS orientation

2021

$ 8.95 billion

$ 0.08

2022

$ 10.77 billion

$ 0.33

2023

$ 12.75 billion

$ 0.73

Source: YCharts. EPS = Earnings per share.

So, investors looking to buy low-cost growth potential stock should take a close look at Chewy. The stock is trading at 3.34 times sales, which puts it at a discount from last year’s price-to-sell ratio of 5.62 and almost at the same level as the S&P 500the sell multiple of 3.2’s, and it may not be available at those multiples once the stock starts to soar.

2. Twilio

Twilio stock has been roughed up this year thanks to management’s habit of providing cautious guidance and then crushing Wall Street expectations with strong results. However, savvy investors would do well to look beyond analysts’ short-term expectations for Twilio and instead focus on the huge opportunity the company finds itself in.

Twilio operates in the cloud-based contact center market, which is expected to record a compound annual growth rate of nearly 26% through 2026, according to a third-party estimate. This is not surprising, as more and more organizations are moving from physical contact centers to cloud-based centers thanks to the many benefits of the latter, including lower operating costs, fast setup time, higher productivity and lower setup costs.

Twilio is one of the best ways to play this transition to cloud-based contact centers and the growing adoption of the Communication Platform as a Service (CPaaS) model, as it controls 38% of this market. according to a third estimate. This bodes well for the future of Twilio as the global CPaaS market is expected to grow 34% annually through 2026 and generate $ 26 billion in revenue.

This indicates that Twilio has plenty of room to continue growing at a formidable rate in the long term given that it has generated $ 2.55 billion in revenue over the past twelve months. Twilio is making the most of the end-market opportunity as its revenue for the third quarter of 2021 increased 65% year-over-year to $ 740 million.

This tremendous revenue growth has been fueled by a mix of acquisitions, a higher number of customers and an increase in spending from the company’s existing customer base. Twilio had 250,000 active customers at the end of the third quarter, up from 208,000 the year before. The company’s net dollar expansion rate was 131% in the quarter.

The net dollar expansion rate compares spending by Twilio’s active customer base in one quarter to spending by the same cohort of customers in the previous year period. So the higher than 100% this figure, the better it is for Twilio, as it indicates higher spending by its customers as they adopt more of its solutions or increase the use of its offerings.

Additionally, don’t be surprised to see Twilio’s net dollar expansion rate increase through cross-selling opportunities arising from its Zipwhip and Segment acquisitions, which have extended the company’s addressable opportunity into growth areas. fast. As a result, it’s no surprise that Twilio’s revenue is expected to continue to grow in the years to come.

TWLO revenue estimates for current year chart

TWLO Revenue Estimates for Current Year Data by YCharts

So, the pullback of Twilio stock in 2021 gives investors the opportunity to buy this high-growth cloud company that appears designed for long-term growth at 18x ​​sales, which is well below its price / price ratio. sales of 31 for 2020.

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Harsh Chauhan has no position in the mentioned stocks. The Motley Fool owns stock and recommends Chewy, Inc. and Twilio. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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