Those losses have left big dings in many portfolios, but smart investors know that downturns are buying opportunities. Here are two spectacular growth stocks to buy now and keep forever.
Block: A disruptive fintech company
To block (Q 4.43%) is the fintech company behind the Square and Cash App brands, both disruptive forces in their respective industries. The Square ecosystem includes a suite of hardware, software and banking services that make commerce easier. These solutions integrate seamlessly, unlike the bundled products offered by traditional commercial service providers.
Similarly, Cash App is a digital wallet that simplifies consumer finance. It allows users to deposit, borrow, spend and invest money from a single platform and ranked as the most downloaded mobile finance app in the US in the first half of 2022, surpassing PayPal and Venmo. Better yet, Block recently added a discovery feature to Cash App that allows consumers to browse and purchase products from sellers who accept Afterpay or Cash App Pay. This strategy could boost adoption.
Despite a challenging economic climate, Block delivered impressive financial results in the third quarter. Cash App’s gross profit jumped 51% to $774 million, while Square’s gross profit jumped 29% to $783 million. Collectively, total gross income increased 38% to $1.6 billion and non-GAAP earnings increased 68% to $0.42 per diluted share. More importantly, shareholders have good reason to be optimistic about the future. Block estimates its addressable market at $190 billion in gross profit, and its ambitious growth strategy should continue to drive market share gains.
In particular, the continued addition of commerce features to Cash App should bring more users to the digital wallet and this should push more businesses to accept Afterpay and Cash App Pay. Meanwhile, Block is successfully growing at the high end and expanding into new geographies, as more mid-market sellers (i.e., those with annual sales above $500,000) and international sellers continued to adopt Square products in Q3. .
The shares currently trade at 2.3 times sales, a notable discount from the three-year average of 7.3 times sales. With that in mind, investors may regret not buying this growth during the dip.
Arista Networks: Leader in high-speed networks
Arista Networks (A NETWORK 1.10%) supplies high-performance networking equipment to data centers. Its core innovation is the Extensible Operating System (EOS), the unique software that powers the entire portfolio of switching and routing hardware. The single software product approach is fundamentally different from that of legacy vendors that use multiple operating systems, making network management more complex and costly.
Simply put, Arista enables enterprises to integrate their IT ecosystems, from private and public clouds to wired and wireless campus workspaces, into seamless networks running a single operating system. Additionally, Arista’s network platforms deliver industry-leading performance, and the company has earned a reputation for world-class customer support, as evidenced by its Net Promoter Score of 80.
These advantages have brought the company to the forefront of the networking industry. In fact, Arista has a 41.5% market share in high-speed data center switches, while it ranks second Cisco systems holds only 22.5% of the market share. That dominance translated once again into solid financial results in the third quarter. Revenues increased 57% to $1.4 billion and GAAP earnings increased 61% to $1.13 per diluted share.
Going forward, investors have good reason to be bullish. Cloud computing and data-intensive applications (e.g. media streaming and artificial intelligence) will continue to strain modern data centers, creating the need for faster network solutions. Arista, as the market leader in high-speed data center switching, is well positioned to benefit from these trends. With that in mind, management estimates its addressable market at $35 billion by 2025, leaving plenty of room for future growth.
As a caveat, the stock is trading at 10.4x sales, slightly above its 10x three-year average, but this growth stock is still worth buying for patient investors.
Trevor Jennewine has positions in Arista Networks, Block, Inc. and PayPal Holdings. The Motley Fool has positions on and recommends Arista Networks, Block, Inc., Cisco Systems and PayPal Holdings. The Motley Fool has a disclosure policy.