Despite the recent downturn in high-growth stocks, experts believe that these types of companies could be among the top performers in the coming year. With strong potential for growth and recovery, analysts are bullish on the following three stocks and believe that they offer investors a significant amount of upside potential.
These companies have been carefully selected based on their strong financials, promising industry outlook, and management teams that have a track record of delivering results. For investors looking to capitalize on the rebound in high-growth stocks, these three names are worth considering.
Snowflake Inc. (SNOW:NYE):
Snowflake (SNOW:NYE) is a software company that specializes in data warehousing and has established itself as the “king of the data cloud.” Its sophisticated and open platform enables clients to unlock the power of data sets, potentially saving them money as they shift from growth to tightening. Despite the current market conditions, analysts remain bullish on SNOW stock, believing that it has a good amount of upside potential.
The Snowflake platform can help hyper-growth firms supercharge their growth during good times, and even in cost-cutting mode, it can perform better than expected as users leverage the platform to improve operational efficiencies. However, Snowflake’s “noisy” usage-based revenue recognition model, rather than a subscription-based one, could make the big ups and downs of markets much more noticeable. This, coupled with its formerly high price-to-sales (P/S) multiple, which used to lie in the triple digits at its peak, could suggest further downside.
Today, Snowflake trades at 25 times sales. While this multiple may be palatable for Snowflake, it is still considered a wildly expensive and absurd multiple compared to almost any other hyper-growth company. In an era of high rates, it can be hard to justify such lofty multiples. However, the company’s latest quarter saw revenues soar 67% year-over-year, which is remarkable growth in this environment, especially when considering currency headwinds. Given that Snowflake’s numbers tend to boom and bust suddenly due to the usage-based model, it is not unlikely that its growth rate could shoot higher on the other side of the recession.
Analysts have a “Strong Buy” consensus for SNOW stock, with an average price target of $197.62, which implies a 26.1% upside potential. This suggests that Snowflake, despite its seemingly hefty price tag, is still considered a firm that deserves it.
Datadog Inc. (DDOG:NSD):
Datadog (DDOG:NSD) is a monitoring and analytics software firm that has experienced a challenging year in 2022, with DDOG stock shedding more than 66% of its value from peak to trough. However, in recent weeks, DDOG has been recovering, leading to speculation that the formerly-hot cloud stock may be on the cusp of a turnaround and its high valuation could be justified. This has led analysts to be bullish on DDOG stock.
Last month, JPMorgan touted Datadog as one of its top software stocks for the year, citing an expected easing environment for the Fed in the second half of the year. Datadog has enjoyed high double-digit top-line growth numbers, with Q3 sales soaring 61% year-over-year, making it an obvious play to recoup a chunk of last year’s steep losses.
While all eyes will be on how Datadog’s numbers will hold up as customers look to tighten their purse strings, the company has shown gross profit margin progress, expanding it by 200 bps in Q3. This is encouraging, but is it enough to justify the 14.7 times sales multiple? Perhaps, because Datadog is one of the hyper-growth stocks that still holds long-term promise.
Analysts rate Datadog as a “Strong Buy”, with an average price target of $117.32, which implies a huge 43.5% gain. This suggests that Datadog, despite its recent struggles, is still considered a stock with significant upside potential.
Intuitive Surgical Inc. (ISRG:NSD):
Intuitive Surgical (ISRG:NSD) is a leading innovator in the medical device space, known for its robotic surgery offering, the da Vinci. The stock has been attempting to recover from a 51% peak-to-trough decline it experienced last year, which was partly attributed to its stretched multiple. Despite this, many analysts remain bullish on the stock’s long-term potential.
At 67.8 times trailing earnings, Intuitive Surgical’s stock remains aggressively priced compared to the advanced medical equipment industry average P/E ratio of 43.2. However, some argue that the company deserves a premium to the peer group due to its leadership in the fast-growing field of minimally-invasive surgery, which is expected to be dominated by Intuitive as it continues to enhance its robotic surgery offering.
One of the reasons for Intuitive’s success is the training and practice required to master its robotic surgery technology. The more hours of expertise that doctors have with da Vinci, the less likely they are to switch to a competing product. Robotic surgery is similar to flying an aircraft in this way, where the more hours of training and practice, the better, given the mission-critical nature of the operation.
While the stock may face medium-term headwinds in 2023 as the winds of recession move in and costly surgical robots become a tougher sell, analysts believe that the long-term secular growth in robot-assisted surgery makes.
Analysts have a “Strong Buy” consensus for ISRG stock, with an average price target of $266.71, which indicates a 14% upside potential.
In Conclusion:
The economic outlook for 2023 remains uncertain, but it is clear that the stock market has already faced significant challenges. The future performance of the market is hard to predict. However, the stocks discussed in this article, Snowflake, Datadog, and Intuitive Surgical, are highly regarded by analysts and are the best high-growth stocks for 2023. Among the three, Datadog stock has the strongest bullish sentiment from analysts.
