3 explosive growth stocks to buy in 2022 and beyond

Many growth stocks have been crushed in recent months as rising rates pushed investors into safer blue chip stocks. However, this sharp sell-off has also compressed the valuations of the most expensive growth stocks in the market to more sustainable levels – so investors who can handle short-term volatility may find bargains in this tough market.

Today, I’m going to review three high-growth tech stocks that may still be worth buying this year: Z-scale (ZS 3.47%), Datadog (DDOG -1.80%)and JFrog (FROG 1.28%).

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1. Z-scale

Zscaler’s cloud-native platform secures networks with “zero trust” tools that treat everyone – even “trusted” employees – as potential threats. As a cloud-based service, it eliminates the need for on-premises appliances. This lightweight approach is easier to scale as an organization grows.

When Zscaler went public in 2018, it served about 2,800 customers and about 10% of the Global 2000. Today, it serves more than 5,600 customers and more than a quarter of the Global 2000.

Its revenue grew 56% year-over-year to $673 million in fiscal 2021, which ended last July, and it expects 55% growth at 56% in fiscal year 2022.

Zscaler is not yet profitable based on generally accepted accounting principles (GAAP), but its non-GAAP earnings are improving. Its non-GAAP net income increased 86% to $75.7 million in fiscal 2021, as its non-GAAP earnings per share (EPS) increased 73%. It expects its non-GAAP EPS to grow 4% to 8% this year.

In late March, I said I admired Zscaler’s business, but was hesitant to buy the stock at more than 30 times this year’s sales. But today it is trading at a more reasonable price of 17 times sales. It’s not a bargain yet, but its robust growth rates could justify this premium valuation.

2. Data Dog

Datadog’s platform monitors an entire organization’s databases, servers, and applications in real time. It pulls all this data into unified dashboards, where it can be more easily monitored by IT professionals. This simplified approach greatly facilitates the detection and diagnosis of problems.

The number of Datadog customers who generated at least $100,000 in annual recurring revenue (ARR) increased 63% to 2,010 year-over-year in 2021. Its number of customers with at least 1 million ARR dollars also increased by 114% to 214. Its net dollar revenue retention rate also remained consistently above 130%.

Datadog’s revenue jumped 70% to $1.03 billion in 2021. Its non-GAAP net income jumped 133% to $167 million and its non-GAAP EPS increased 118%. It also became profitable on a GAAP basis in the fourth quarter of the year.

It expects its revenue to grow 55% to 57% this year and its non-GAAP EPS to grow 46% to 70%. This outlook is impressive, but I was also reluctant to buy stocks at more than 30 times sales earlier this year. Today, it’s trading at 17 times this year’s sales – so now might be a good time to start accumulating shares of this high-growth software company.

3.JFrog

JFrog’s core platform, Artifactory, is a universal repository for automated software updates. Instead of relying on human employees to manually update an organization’s software – which can be buggy, time-consuming, and prone to human error – Artifactory automatically pushes and applies those updates across a wide range of computer platforms.

JFrog went public in late 2020. Its total number of enterprise customers grew 10% year-over-year to 6,650 in 2021, and its number of customers that generated over $100,000 in ARR rose 53% to 537. It also ended the year with an impressive 12-month net dollar retention rate of 130%.

JFrog’s revenue grew 37% to $207 million in 2021, and it expects 34% to 35% growth in 2022. Its non-GAAP net income fell 80% to $2.7 million dollars in 2021, as its non-GAAP EPS fell 77%, but this drop was mainly caused by two recent acquisitions. It expects these expenses to continue into 2022 and reduce its non-GAAP EPS to near break-even levels.

This earnings pressure has spooked the bulls, but JFrog’s gross margins continue to rise. Its stock also looks attractively valued at just 6x this year’s sales, compared to its double-digit price-to-sales ratios a year ago, so could be a great long-term buy for patient investors. .

Garland K. Long