In today’s low-interest-rate, technology-disruption-based economy, growth stocks have been the flavor of the decade. In fact, growth stocks are currently outperforming value stocks by some of the widest margins since the dot-com bubble, and they’ve been outperforming for an unprecedented amount of time.
However, unlike the dot-com bubble, these new tech darlings have legitimate revenue and profit growth, suggesting they’re more the real deal than not. So, when looking for the next multibagger stock, it’s a good idea to keep tabs on those companies growing the very fastest, as the fastest-growers have the best shot at justifying their lofty valuations.
Zoom Video Communications: Best quarter ever?
While I had been quite skeptical that Zoom Video Communications could ever justify the valuation investors had assigned it during the pandemic-fueled first quarter, to the company’s credit, it posted some truly eye-popping results in early June.
Even though many people can use Zoom free of charge for 40 minutes, the ease and flexibility of Zoom’s customer-friendly software and “freemium” business model was enough to spur torrid paid subscription growth as COVID-19 set in.
Zoom’s recent quarter ended April 30, so it captured a good amount of the depths of the pandemic outbreak, during which “Zoom” became a verb closely associated with videoconferencing itself. That manifested itself in a massive 169% growth in revenue.
Profits and free cash flow also skyrocketed by many multiples — adjusted operating income increased from $8.2 million to $54.6 million. Thanks to a lot of new subscriptions that are paid up front, free cash flow rose from $15.3 million to $251.7 million. Customers that pay over $100,000 in trailing 12-month revenue soared a bit less at 90%, but new customers with more than 10 employees grew a truly eye-opening 354%.
Investors should be aware that the stock is undeniably expensive at a 1,452 P/E ratio and a 92 price-to-sales ratio, even including the impact from the recent blockbuster quarter that is likely to be the best in the company’s history. That being said, should Zoom execute and covert a lot of these new free or low-paying customers to becoming larger paying customers over time, the company could be in for continued marquee growth in the years ahead.
Lemonade: A spoonful of sugar in an otherwise bland industry
Never heard of Lemonade (NYSE:LMND)? That may be because this would-be insurance industry disruptor just had its