When you hear of the phrase up-and-coming stocks, what comes to your mind? Do you think of a corporation that shows high growth potential? A stock that is likely to take off in the market? Or one that promises a future cash flow? All these are what experienced investors look for when researching new or up-and-coming stocks.
Let’s explore three up-and-coming stocks.
1. Zscaler, Inc. (NSDAQ: ZS)
Zscaler is a cloud-based platform that offers cybersecurity services. With rapid technological growth, there is an urgent need for employees and customers to access information and data stored in various offsite data centres rather than a central server. Additionally, more people work from home, so they need to safely access this data from remote locations.
Why It Matters
Zscaler’s goal is audacious; it aims to secure more than 200 million users and hundreds of millions of workloads. These figures are up from the 20 million users that the company had by the middle of 2021. Zscaler focuses on new clients, expanding into more geographical locations and segments, providing alternative solutions, and increasing its functionality to achieve its goal.
Compared to its competitors, such as Broadcom and Cisco, which are much bigger, Zscaler is growing rapidly. In the past three years, the company’s revenue has increased by about 211 per cent. Additionally, since 2016, the platform’s net retention has exceeded 100 per cent. Customers are willing to spend, and as we advance, Zscaler’s market position will increase.
Investors should keep a keen eye on Zscaler’s customer growth and its dollar-based retention rate. The metrics mentioned above are an indication that the company is scaling new heights. However, it would be a bad sign if the customer growth and dollar-based net retention rates start to dip. Investors should be aware that Zscaler is not yet profitable, even though it has already achieved a $26 billion market cap.
That said, Zscaler is still a large market with plenty of opportunities. As more companies and businesses move to cloud-based storage and services, Zscaler will grow more rapidly.
2. Airbnb (NASDAQ: ABNB)
During the pandemic, travel companies fell flat. Airbnb was also affected, but the good results from the first quarter of 2021 have pushed the rental platform a notch higher. At present, with the reopened economy and the travelling season, Airbnb should be an appealing pick for your portfolio.
Why It Matters
Airbnb stock has gradually improved due to the remarkable first-quarter results. Furthermore, the rising travel demand and the publication of up to 100 newly upgraded systems intended to improve serviceability make Airbnb just the right stock in your portfolio. It may cause an alarm to some investors that over the past few months, the company has dropped back to its initial price offering (IPO) price. The good news is in the long term, the Airbnb stock may have a great low buy opportunity.
In the first quarter of 2021, at least 64.4 million nights and experiences were booked on Airbnb, which significantly increased the Gross Booking Value (GBV) that includes the hosts’ earnings, taxes and service and cleaning fees of the company to $10.3 billion, a 52 per cent at an annual rate increase. Airbnb also reported more modified earnings before interest, taxes, depreciation, and amortization (EBITDA) of $217 million in the second quarter.
Longer stays, and increased booking percentages are among the positive trends the company has distinguished that could go on post-COVID-19. Airbnb saw an increase in experiences and driving nights in both domestic and short distance travels booked by 29 per cent in 2022. The 28 days and more stay period are another way to boost Airbnb. The company also shows the possibility of high-margin and easy-to-use operations that could result in constant revenues. Investors are therefore advised to buy shares.
3. Spotify Technology SA (NYSE: SPOT)
Spotify Technology SA is an online music service that offers unlimited access to music. The digital company operates through premium and ad-support that offers its subscribers online and offline streaming of music. It has, however, faced a lot of challenges as the least performing on the best stocks list to buy in 2021, with its stocks falling by 30 per cent. While adding about 2 million ad-supported users, Spotify still has a chance in the stock market even after failing to meet the stock market outlook.
Why It Matters
Spotify Technology SA gained 9 million monthly users in its second quarter, ending with about 365 million users. The company’s margins are steadily improving at 22 per cent and a rise in gross margin of 28.4 per cent in the latest quarter. Even though some experts may project that the company would make more than $1 loss per share come 2022, improving ad products seems to be enhancing profitability.
Spotify has created better ways to make a profit by investing in technology to improve targeted ads, monetizing services to entertainers, and accumulating more podcasts, making Spotify’s gross margin for advertising increase to 11.3 per cent in the second quarter from 4.4 per cent in the first quarter.
A few weeks ago, the average expert evaluation for 2022 was at least 2 per cent profit, presumably not much of a profit, but that’s an improvement, and by 2025 the average earnings per share (EPS) is estimated to be $4.6; more promising.
Investing in stock and company growth can be a creative way to earn wealth in the stock market. However, the key is to know when and which up-and-coming stocks to buy through in-depth research and experience. Another critical thing to consider is that even the best stocks follow the market direction. It is best to invest when the financial market is on an uptrend and research various companies that produce new and ground-breaking products and services.
A savvy investor also knows the not-yet-profitable companies that are increasing in revenue are worth looking at. Investors should consider long-term performance rather than short-term profitability when searching for the best up-and-coming stocks.