Analysts expect Netflix, Inc. (NFLX) to grow revenue 29% in 2016 and another 26% the year after. It is from this growth that NFLX supports a $42 billion market capitalization.
But the fact is that NFLX is not worth $42 billion, and chance are it will never grow its business to the size of Twenty-First Century Fox (FOXA), which actually supports a relatively similar valuation with its operations.
No, NFLX is a growth story, a momentum stock, a company whose lofty valuation is tied to the manner in which it has disrupted the pay-TV industry, and not necessarily its trajectory.
Nevertheless, Netflix stock does prove that a company with sustained growth can soar in valuation. And for that reason, investors should always be on the lookout for similar high-growth stocks.
If you’re looking for a place to start, consider these eight stocks to buy — all of which are growing faster than NFLX.
Stocks to Buy: Twitter Inc (TWTR)
Estimated 2016 Revenue Growth: 36%
Estimated 2017 Revenue Growth: 26%
The expectations for Twitter (TWTR) are low. The company can not grow its monthly active users, management is constantly being shook up and engagement is nowhere near the level of Facebook Inc (FB).
However, Twitter still has more than 300 million users, and from that user base, the company has a big enough advertising audience to drive revenue growth of 33% and 26% over the next two years, respectively.
When you consider its 63% stock decline over the last year, that growth looks very attractive for investors. And personally, I think the growth outlook for TWTR is way too conservative.
Twitter’s new CEO Jack Dorsey announced late last year that the company will monetize the 500 million people who see tweets, but are not actually Twitter users. Twitter will show ads on third-party sites, apps and search results where tweets exist. Dorsey believes these non-users can be monetized at about half the rate of actual users.
With Twitter’s outlook not changing since Dorsey’s plan was unveiled, it certainly seems like expectations are conservative. Nonetheless, Twitter will still grow faster than NFLX, regardless of whether Dorsey’s plan works.
Stocks to Buy: Workday Inc (WDAY)
Estimated 2016 Revenue Growth: 33%
Estimated 2017 Revenue Growth: 31%
Workday (WDAY) is one of the fastest growing software-as-a-service (SaaS) providers in the world, with expected revenue growth of 33% and 31% over the next two years, respectively. While the company operates in many layers of SaaS, its core business is in human resource management (HRM).
HRM is a business that has grown from $50 billion in 2013 to an expected $70 billion in 2015, and Workday is the fastest growing company in the arena. With just $1.5 billion in revenue expected this year, WDAY is still a fly on the wall in HRM, but over time, its push to bring all human-resource-related operations to the cloud are sure to bring the company higher market share.
It is this assumption that explains Workday’s $14 billion market capitalization.
Stocks to Buy: Tableau Software Inc (DATA)
Estimated 2016 Revenue Growth: 28%
Estimated 2017 Revenue Growth: 27%
Ironically, Tableau (DATA) stock recently fell 50% in a single session after it issued light full-year guidance for 2016. That “light” guidance still figures revenue growth at a midpoint of 28%, and analysts expect DATA to grow another 27% the year after. (As a note, Wall Street is expecting revenue growth of 29% for Tableau this year.)
While the company is not growing at the 50%-plus rate it once was, DATA still is performing just fine. During its last quarter, the company added 3,600 new accounts, with the number of $100,000 or higher transactions rising 36% year-over-year to 414. Furthermore, Tableau’s international business remains a bright spot, growing 63% during its last quarter and accounting for 26% of total revenue.
Clearly, Tableau Software is growing much faster than Netflix, and because it is oversold, investors are likely to find much higher long-term upside in DATA than NFLX.
Stocks to Buy: Splunk Inc (SPLK)
Estimated 2016 Revenue Growth: 32%
Estimated 2017 Revenue Growth: 29%
If DATA is the big data stock that Wall Street loves to hate, then Splunk (SPLK) is the one it loves.
SPLK has soared 43% in the past month behind its strong fourth-quarter earnings and outlook for the coming year.
The company’s guidance implies revenue growth of 32%, and analysts think that SPLK could add another 29% revenue growth the year after. With more than 600 clients added in the quarter and over 11,000 total, SPLK certainly appears to be operating on autopilot.
As a result, many research firms like BMO think that SPLK will easily grow billings by 45% this year. Since billings translate to revenue, such growth bodes well for SPLK investors long-term.
Stocks to Buy: Fitbit Inc (FIT)
Estimated 2016 Revenue Growth: 32%
Estimated 2017 Revenue Growth: 21%
Fitbit (FIT) revenue is expected to grow roughly 32% this year, and more than likely, that figure is well short of how FIT will actually perform.
Since Fitbit’s IPO last year, all the company has done is beaten and raised guidance with each earnings report. Its full-year revenue of $1.86 billion last year was $460 million higher than what analysts and the company expected last July. Further, Fitbit was the biggest technology winner of the holidays, Google search data implies that 2016 will be yet another breakout year for FIT, and the company finally has a smartwatch to enter the faster growing smart wearables market.
Collectively, there is a lot to like about this fast growing company, and the fact that Wall Street pairs it so closely to the failures of GoPro Inc (GPRO) makes it all that much more attractive. After all, FIT has given investors no reason to bet against it, yet the stock is down 50% over the past three months.
To me, that’s a rather good reason to be bullish from here.
Stocks to Buy: FireEye Inc (FEYE)
Estimated 2016 Revenue Growth: 33%
Estimated 2017 Revenue Growth: 24%
Threat prevention leader FireEye (FEYE) has faced harsh criticism over the past year for its decelerated growth.
While FireEye may never again grow 150% or more in a single year, the company maintains an impressive growth rate. For 2016 and 2017, revenue will grow 33% and 25%, respectively.
Meanwhile, with FEYE shares down 57% the last year, its stock price is better aligned with the actual performance of its business. That’s why low expectations and the company’s strategic move toward FireEye-as-a-service (FaaS) could provide an unexpected spark for current owners of the stock.
FaaS has only penetrated 8% of FireEye’s customer base, and is already on a $100 million-plus revenue run rate after recently launching.
That success gives investors a reason to be excited.
Stocks to Buy: Palo Alto Networks Inc (PANW)
Estimated 2016 Revenue Growth: 46%
Estimated 2017 Revenue Growth: 33%
Palo Alto Networks (PANW) is the cybersecurity stock that Wall Street favors among the group of next-gen service providers. The company’s $1.1 billion in revenue supports a whopping $14 billion market capitalization.
The reason is because of its growth. Palo Alto is expected to grow 46% this year and 33% next year. That’s impressive, but with PANW’s next-generation firewalls being a secondary service among the majority of its customers, there is great upside for Palo Alto to further up-sell its products and services long-term.
Yes, PANW might be a little pricey, but then again, cyber crime is a serious threat, and PANW is one of the best at solving the problem.
Stocks to Buy: Facebook Inc (FB)
Estimated 2016 Revenue Growth: 46%
Estimated 2017 Revenue Growth: 33%
Facebook is the final, and perhaps most impressive, company growing much faster than Netflix.
FB is much larger than NFLX, with its revenue expected to top $33.8 billion by the end of next year, which will come via 42% and 33% sales growth over the next couple years, respectively.
What’s more impressive is that there is no end in sight. Facebook has at least eight major catalysts that can grow the company much, much larger. Furthermore, FB could very well double its North American revenue in the next five years, just off the success and growth of Facebook’s core platform and Instagram alone, completely eliminating the potential from WhatsApp and Messenger.
With that said, some put FB and NFLX in the same conversation, believing Facebook is too expensive. However, that is not true — once you consider that Facebook is trading at just 26.6 times next year’s EPS, yet is projected to grow earnings by more than 30% annually over the next five years.
Given its growth, FB is not all that pricey, and could go even higher as it continues to grow larger.
As of this writing, Brian Nichols was long FEYE, FIT and TWTR.
