High-growth tech stocks are looking pretty toxic these days. Still, that doesn’t mean analysts don’t some of them. In this piece, I’ll take a look at three hyper-growth stocks — SNOW, DDOG, and ISRG — with solid year-ahead upside potential, according to analysts.
Snowflake is a unique software company in the data-warehousing space. I like to view the firm as the king of the data cloud. With a sophisticated and open platform that helps clients unlock the power of data sets, it’s not too far-fetched to think the Snowflake platform can help clients save money as they shift from growth to tightening. I also think its valuation has come down to a reasonable level. Therefore, I remain bullish on SNOW stock.
Snowflake can help hyper-growth firms supercharge their growth when times are good, and though many companies are in cost-cutting mode, I still think Snowflake can perform better than expected as users leverage the platform to improve operational efficiencies.
Snowflake’s “noisy” usage-based revenue recognition model (rather than subscription-based) could make the big ups and downs of markets much more noticeable. Not to mention that Snowflake stock used to be one of the “priciest” (more like priciest-looking) stocks, with a price-to-sales (P/S) multiple that used to lie in the triple digits at its peak.
Today, Snowflake trades at 25 times sales. For Snowflake, that’s a palatable multiple. However, compared to almost any other hyper-growth company, that’s still a wildly expensive and absurd multiple that suggests further downside.
In an era of high rates, it’s hard to justify such lofty multiples. Nonetheless, I believe Snowflake is one of the firms that still deserves its seemingly hefty price tag. The company’s latest quarter saw revenues soar 67% year-over-year. That’s 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, I’d not be shocked if its growth rate shoots higher on the other side of the recession.
What is the Price Target for SNOW Stock?
After the snowfall could come the melt-up. At least, that’s what analysts think, with their “Moderate Buy” consensus. The average SNOW stock price target of $182.17 implies 26.1% upside potential.
Monitoring and analytics software firm Datadog was in the doghouse for most of 2022; the stock shed more than 66% of its value from peak to trough. However, DDOG has been recovering in the past two weeks, so the formerly-hot cloud stock may be on the cusp of a turnaround, and its high valuation could be justified. I am bullish.
Last month, JPMorgan (NYSE:JPM) touted Datadog (and Snowflake) as its top software stocks for the year. Ultimately, JPMorgan expects that an easing environment for the Fed could arrive in the second half. For a hyper-growth play that’s enjoyed high double-digit top-line growth numbers (Q3 sales soared 61% year-over-year), DDOG looks like an obvious play to recoup a chunk of last year’s steep losses.
In the meantime, all eyes will be on how Datadog’s numbers will hold up as customers look to tighten up their purse strings. Still, Datadog has shown gross profit margin progress, expanding it by 200 bps in Q3.
That’s encouraging, but 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.
What is the Price Target for DDOG Stock?
Wall Street has a “Strong Buy” on Datadog. The average DDOG stock price target of $104.50 implies a huge 43.5% gain.
Intuitive Surgical (NASDAQ:ISRG)
Intuitive Surgical is arguably one of the most exciting innovators in the medical device space. The stock’s attempting to climb back from a 51% peak-to-trough rut it fell into. Indeed, its stretched multiple last year was a major reason the stock suffered such a significant setback. In any case, I remain bullish.
At 67.8 times trailing earnings, the stock remains aggressively priced versus the advanced medical equipment industry average P/E ratio of 43.2. However, I think Intuitive deserves a premium to the peer group. Minimally-invasive surgery isn’t just a fast-growing field; it’s one that could be dominated by Intuitive as it continues to enhance its robotic surgery offering.
Indeed, it takes time for doctors to become masters at using robotic surgery. It takes practice, and with more doctors putting in hours on Intuitives da Vinci, the number of hours of expertise is growing. With that, many doctors will be less willing to switch to a competing product.
In many ways, robotic surgery is akin to flying an aircraft. The more hours of training and practice, the better, given the mission-critical nature of the operation.
Those costly surgical robots will be a tougher sell as winds of recession move in. As such, 2023 could see medium-term headwinds outweigh the longer-term secular growth in robot-assisted surgery, but the stock is still attractive for the long term.
What is the Price Target for ISRG Stock?
Wall Street likes Intuitive Surgical, with a “Moderate Buy” consensus rating. The average ISRG stock price target of $277.93 implies 14% upside potential from here.
While the economy may take more backward steps in 2023, it’s unclear how the stock market will react. Simply put, a lot of damage is already in the books. How much more damage could come remains a mystery. Nonetheless, the stocks mentioned above are highly favored by analysts and have upside potential. Out of the three, analysts are most bullish on DDOG stock.