Investors have rewarded stocks with above-average growth rates. The economy is expected to rebound in 2021, however, overall growth should remain weak. This is leading to increased multiples for growth stocks. This along with continued digital transformation should keep driving the growth of key technology players.
So far in 2020, growth stocks significantly outperformed the rest of the market. The SPDR Portfolio S&P 500 Growth ETF (SPYG), which can be seen as an indicator of the performance of growth stocks, has gained 23% year-to-date versus the S&P 500 6.6% return.
Among the technology players, those that are creating new ways to live and stay functional with their cutting-edge services are expected to witness a very high revenue and earnings growth.
Amazon.com, Inc. (AMZN), Zoom Video Communications, Inc. (ZM), Shopify, Inc. (SHOP), and Snap, Inc. (SNAP) already have a proven track record of strong performance and they are expected to further build on their success. These companies are innovating quickly to stay ahead of the competition. They also have a strong balance sheet to back up their growth.
Amazon.com, Inc. (AMZN)
AMZN is the world’s largest online retailer. The company develops, manufactures, and markets electronic devices such as the Fire tablet, Kindle reader, Fire TV, and more. The company also provides cloud computing services through Amazon Web Services. AMZN’s stock has gained 64.9% so far this year.
AMZN has recently launched Project Zero in seven more countries taking the total up to seventeen. Project Zero is an effort by AMZN to reduce the sale of counterfeit goods from its stores. AMZN has also signed an agreement to acquire Zoox which is working on developing autonomous vehicles for ride-hailing services. AMZN has also received approval from the FCC to launch a constellation of 3,236 satellites to provide low-cost broadband internet services in the United States and elsewhere. This move could help break AMZN into the communications space.
AMZN’s trailing-twelve-month revenue grew at a CAGR of 29.3% over the last three years. The company’s five-year average EBITDA year-over-year growth rate is 51.5%.AMZN is expected to witness revenue growth of 36.6% for the quarter ending December 2020, and 18.1% in 2021. The company’s EPS is estimated to grow 30.6% in 2021 and at a rate of 36.4% per annum over the next five years.
How does AMZN stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
B for Overall POWR Rating
The stock is also ranked #4 out of 58 stocks in the Internet industry.
Zoom Video Communications, Inc. (ZM)
ZM operates a cloud-based platform that allows users to communicate through video. Users can also communicate through chat, voice, and share content. The company’s platform works on a diverse range of devices and can support thousands of people in a single meeting. ZM’s stock has gained 610% so far this year.
The company has launched end-to-end encryption that allows for far greater privacy and security during Zoom meetings. The company has also announced the launch of OnZoom which is a communications platform specifically designed to host online events. With in-person events becoming more difficult and problematic due to the pandemic, this new service could solidify ZM’s dominance in the space.
ZM’s trailing-twelve-month revenue grew at a CAGR of 190.4% last year. ZM is expected to witness revenue growth of 286.9% for the quarter ending January 2021, and 287.3% in 2021. The company’s EPS is estimated to grow 625.7% in 2021 and at a rate of 38.5% per annum over the next five years.
It’s no surprise that ZM is rated a “Buy” in our POWR Ratings system, with a grade of “B” in Trade Grade and Peer Grade. In the 54-stock Technology – Services industry, it is ranked #5.
Shopify, Inc. (SHOP)
SHOP runs a mobile and web platform for e-commerce that allows merchants to retail their products online. Merchants can set up, design, and manage their online stores through the platform. SHOP’s stock has gained 150.5% so far this year.
SHOP has recently upgraded its platform to allow merchants to sell subscription-based services and post-purchase upsell apps to customers at checkout. This innovation makes SHOP’s platform even more attractive to existing and prospective merchants that are considering venturing into e-commerce. The company has also partnered with social media giant TikTok to allow its merchants to market their products to TikTok’s users. This new partnership could help SHOP’s merchants gain further market share and find new customers.
SHOP’s trailing-twelve-month revenue grew at a CAGR of 61.7% over the last three years. SHOP is expected to witness revenue growth of 79.1% for the quarter ending December 2020, and 31.2% in 2021. The company’s EPS is estimated to grow 1116.7% in 2020 and at a rate of 105.4% per annum over the next five years.
SHOP’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with a “B” in Trade Grade and Peer Grade. It is ranked #2 out of 35 stocks on the Internet – Services industry.
Snap, Inc. (SNAP)
SNAP operates a social-media app that allows users to share quick images and short videos. The app also enables users to use a variety of filters and other enhancements. SNAP’s app also uses virtual reality to enhance the experience of users. SNAP’s stock price has gained 157.1% so far this year.
SNAP has recently launched a new feature that allows content creators to show their subscriber counts to viewers. This creator-focused addition shows SNAP’s commitment to helping creators grow their audience. SNAP has also launched a feature called “Sounds” that allows users to add licensed music to their snaps on the platform. This move mirrors TikTok’s existing features and could help SNAP become more competitive in the space.
SNAP’s trailing-twelve-month revenue grew at a CAGR of 45.2% over the last three years. SNAP is expected to witness revenue growth of 50.9% for the quarter ending December 2020, and 40.7% in 2021. The company’s EPS is estimated to grow 43.8% in 2020 and at a rate of 67.4% per annum over the next five years.
It’s no surprise that SNAP is rated a “Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade, Peer Grade, and Industry Rank. In the 58-stock Internet industry, it is ranked #7.
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AMZN shares were trading at $3,338.73 per share on Thursday afternoon, up $97.57 (+3.01%). Year-to-date, AMZN has gained 80.68%, versus a 10.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More…
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