Last week proved to be tough for growing stocks. Many of the fathers of the fastest growing technology in the market collided, especially during the second half of the week. Withdrawal is likely primarily a function of some gains as many of these stocks have risen since the end of the coronavirus market crash in March.
Of course, many of these stocks were due to a correction. After all, stocks may not be significantly upward forever. Eventually, they become overrated. Therefore, a return on these shares was largely appreciated. But the downturn may also have caused some stocks to outperform.
Three big growth stocks that look like good buy-in options after last week’s sale are cloud-based data companies MongoDB (NASDAQ: MDB), monitoring and analytics platform provider Datadog (NASDAQ: Ddog), and telehealth and virtual care companies Teladoc Health (NYSE: TDOC) and Livongo Health (NASDAQ: LVGO).
MongoDB: Down 18%
Following this week’s sell-off, MongoDB shares are now down 18% from the top, giving today’s investors a much better entry point than many other investors have paid for the shares this summer.
MongoDB has been able to continue to grow its business rapidly – even through the pandemic. The company revenue for the quarter ending April 30, 2020 (MongoDB fiscal first quarter 2021), increased 46% year-on-year. This was particularly an acceleration from the 44% growth in the previous quarter. The company even raised the low end of its 2021 fiscal revenue outlook by $ 10 million, instructing that 2021 fiscal revenue be between $ 520 million and $ 530 million.
“While the impact from COVID-19 will be longer than we initially expected at the beginning of this fiscal year, we are seeing clear signs that the current environment is strengthening long-term trends toward digital transformation and cloud migration,” said CEO MongoDB Dev Ittycheria in publishing the company’s first quarter earnings. “MongoDB is a clear beneficiary of these trends and we will continue to invest to take full advantage of this market opportunity.”
Datadog: Down 23%
Shares of Datadog are down 23% since reaching a high of $ 98.99 earlier this month. However, Datadog’s core business is booming. While second-quarter revenue growth slowed from an 87% growth rate in Q1, it was still a strong 68% year-on-year increase.
The company’s customers with contracts boasting recurring annual revenue of $ 100,000 or more since the end of Datadog’s second quarter were particularly 71% year-on-year, at 1,015.
Looking ahead, the company provided a full picture for $ 566 million to $ 572 million in revenue. Analysts expected 2020 revenues of $ 564 million.
Livongo Health and Teladoc: down 19% and 23% respectively
Finally, there are Livongo Health and Teladoc – two companies whose reserves plummeted last week after they announced they planned to relocate and merge their businesses – a move that would make them undisputed executives in telehealth and virtual care.
The two companies estimate the combination will go to $ 100 million in revenue synergy by the end of the second year after the merger closes. Moreover, they forecast $ 500 million of revenue-based synergies based on flow-through level by 2025. Considering that the two companies generate only $ 923 million in annual revenue together today, this is a projection.
Investors buying into these wireless technology companies are taking part in a tremendous growth history. Livongo Health, a company specializing in virtual care solutions for people with chronic conditions, had second-quarter revenue growth of 125% year-on-year to $ 91.9 million. Telehealth platform provider Teladoc has seen second-quarter revenue grow 85% year-over-year.
Of course, there is always the risk that the union will not close. But even as individual units, Livongo Health and Teladoc Health also have excellent competitive positioning – and their shares have fallen 19% and 23%, respectively, from the all-time highs.
Expect more instability ahead
While these stocks look attractive today, it does not mean that the prices they saw on Friday will be the lowest they trade with from now on. Growth stocks can be very volatile as investors constantly try to revalue the present value of stocks today based on wild forecasts for future growth. Small changes in sentiment for the growth trajectories of these companies can cause significant fluctuations in their prices.
However, looking at five years and beyond, these rapidly evolving technology companies will continue to gain market share and improve their offering to their customers, making them the critical technology of the future and ultimately rewarding investors. Most importantly, their scalable business models are likely to generate significant profits over a long period of time. But investors will have to exercise patience because these companies are still investing heavily in the huge growth opportunities ahead of them.