2 High-Growth Stocks That Could Become Unstoppable

rubbery (NYSE: you) And Twilio (NYSE: TWLO) Investors are going through a terrible year, with stock prices for both companies dropping despite the amazing growth they’ve reported so far in 2021.

However, this may present an opportunity for savvy investors to buy two fast-growing companies at relatively cheap valuations before they break out. Let’s take a look at the reasons why Chewy and Twilio’s fortunes can turn around and help these two grow into becoming unstoppable.

ALL . scheme

All data by YCharts

1. chewy

Chewy’s share price drop is a bit surprising given that it is an online retailer of pet food and supplies, a market that has been growing at a rapid pace since the novel coronavirus pandemic. Chewy maintained its momentum even after the peak of the pandemic, which is evidenced by its second-quarter results for fiscal year 2021, which were released on September 1, 2021.

The company’s revenue increased approximately 27% year-over-year to $2.16 billion thanks to a larger customer base and increased spending. Chewy had 20.1 million active customers at the end of the quarter, an increase of 21.1% over the same period last year. Meanwhile, the company’s net sales per active customer rose 13.5% year-over-year to $404, the first time in the company’s history that the metric exceeded $400.

This combination of an increase in Chewy’s customer base and a rise in spending by its active customers is not surprising, as more people are buying pet food and supplies online at US market research firm Packaged Facts, and Packaged Facts estimates that 30% of sales of pet food and supplies are Pets are happening online in 2021, compared to just 8% in 2015. The pandemic has accelerated the adoption of online shopping for pet products and supplies, which is why Packaged Facts predicts e-commerce could account for 53% of all pet product sales. pet retail space by 2025.

A man looks at a line chart on a laptop.

Image source: Getty Images.

This may translate into a healthy addressable opportunity for Chewy, as the total pet sale market in the United States is expected to be approximately $95 billion by 2025. Most importantly, Chewy is one of the major players in this field. A survey conducted by Packaged Facts indicates that 41% of customers surveyed who buy their products online do so from Chewy.

As such, Chewy can continue to enjoy chronic growth thanks to its strong position in a rapidly growing industry. Additionally, it is worth noting that the strong customer base Chewy has built to date will fuel its long-term growth through increased spending. That’s because the company’s customers increase their spending on its offerings over time. Chewy’s management noted in a letter to shareholders earlier this year that “customers have historically spent more than $400 with us in their second year, compared to about $700 in their fifth year and about $900 in their ninth.”

All of this explains why Chewy is expected to generate impressive earnings and earnings growth in the coming years.

Fiscal year

revenue routing

EPS . steering

2021

$8.95 billion

0.08 dollars

2022

$10.77 billion

$0.33

2023

$12.75 billion

$0.73

Source: YCharts. EPS = earnings per share.

So investors looking to buy a potential growth stock on the cheap right now should look closely at Chewy. The stock is trading at 3.34 times sales, which puts it at a discount to last year’s price-to-sales ratio of 5.62 and almost on par with Standard & Poor’s 5003.2 Sales multiples – and may not be available in these multiples once the stock starts to rise.

2. Twilio

Twilio’s stock has taken a hit this year thanks to management’s habit of giving conservative guidance and then smashing Wall Street expectations with a solid set of results. However, savvy investors would do well to look beyond analysts’ near-term expectations of Twilio and instead focus on the enormous opportunity the company is sitting on.

Twilio operates in the cloud-based call center market, which is expected to register a compound annual growth rate of approximately 26% through 2026, according to a third-party estimate. This is not surprising, as more organizations are moving from physical call centers to cloud-based ones thanks to the many benefits of the latter, including lower operating costs, fast setup time, higher productivity, and lower setup costs.

One of the best ways to play this move towards cloud-based call centers and the growing adoption of the Communications as a Service (CPaaS) platform model is Twilio, controlling 38% of that market according to a third-party estimate. This bodes well for the future of Twilio, as the global CPaaS market is expected to register 34% YoY growth through 2026 and generate $26 billion in revenue.

This indicates that Twilio has plenty of room to continue growing at an impressive pace over the long term given that it generated $2.55 billion in revenue over the subsequent twelve months. Twilio is making the most of the end market opportunity, as its revenue for the third quarter of 2021 increased 65% year over year to $740 million.

This exponential growth in revenue was driven by a combination of acquisitions, increased customer base, and increased spending by the company’s existing customer base. Twilio had 250,000 active customers at the end of the third quarter, up from 208,000 in the same period last year. The company’s net expansion rate on a dollar basis was 131% during the quarter.

The dollar-based net expansion rate compares spending by Twilio’s active customer base in a quarter to that of the same group of customers in the same period last year. So the higher this number is above 100%, the better for Twilio, as it indicates an increase in spending by its customer base as they adopt more of its solutions or increase the use of its offerings.

Furthermore, don’t be surprised to see Twilio’s dollar-based net expansion rate rise thanks to cross-selling opportunities arising from the Zipwhip and Segment acquisitions, which have expanded the company’s steerable opportunity into fast-growing regions. As a result, it is not surprising to see that Twilio’s top streak is expected to continue rising in the coming years.

TWLO revenue estimates for the current fiscal year chart

TWLO revenue estimates for current fiscal year data by YCharts

So a dip in Twilio stock in 2021 gives investors the opportunity to buy this high-growth cloud company that appears designed for long-term growth at 18 times sales, well below the 2020 price-to-sales ratio of 31.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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