Cloud-based software has taken off in recent years with cloud powerhouses like Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), Oracle (NYSE: ORCL), and Adobe (NASDAQ: ADBE), paving the way for smaller firms to come in and fill the market gaps in this accelerating category. Enterprise cloud software is a space that has a massive amount of growth opportunity as digital enterprise management becomes a necessity to compete in any industry.
Salesforce (NYSE:CRM), a pioneer in enterprise management software, continues to prove that this cloud-based model is on fire. The company released its July quarter earnings after the bell last Thursday and exceeded analysts’ average expectations for both earnings and sales. The stock is up roughly 8% in the last week of trading.
Salesforce is the largest cloud-based enterprise software firm in the market. Their positive performance is an implication to the entire business software market. Below I will discuss two smaller less-known businesses in the field that could provide some positive returns in your portfolio.
Cloud Stocks to Buy: HubSpot (NYSE:
HUBS)
HubSpot has been on a tear, showing investors 59% growth so far this year. Analysts have been raising estimates on HUBS, propelling it to a Zacks Rank # 2 (Buy).
HubSpot provides companies with software as a service (SaaS). It delivers cloud-based businesses services with its segments, including Marketing Hub, Sales Hub, Service Hub, and a free CRM system.
HubSpot’s goal is to create a seamless customer experience that allows businesses to “grow better.” Its target customers are small-to-medium-sized businesses with tremendous growth potential.
Since HubSpot went public five years ago, it has been able to illustrate consistent year-over-year and quarter-over-quarter topline growth with a compounded annual growth rate (CAGR) of 42%. HUBS international sales growth, at a 62% CAGR, outpaces its domestic revenue increases.
HUBS forward P/S multiple has continued to balloon as its business model is gradually proven to investors and expected growth potential is appreciating. This stock is by no means cheap, but that doesn’t mean that this couldn’t provide you with significant returns.
Cloud Stocks to Buy:
PagerDuty (NYSE:PD)
PagerDuty went public in April of this year during the IPO frenzy, and the stock has had a wild ride. PD’s IPO price was $24, then immediately jumped to $38.25 when it hit the public markets. It reached $59 in June and is now trading at $35.60.
PagerDuty provides customers with a one-of-a-kind business model that leverages digital signals to report incidence within a firm’s digital infrastructure that needs to be addressed. PagerDuty then “enable customers to orchestrate the responsible team members across developers, IT, security, support, and other business functions,” according to its prospectus. AI and machine learning are used to improve this process for each customer continuously.
This company has experienced quarter-over-quarter top-line growth for over two years and is expected to grow its sales 38% this year and 29% the next. Its margins are also expected to climb.
To buy PagerDuty stock, investors have to believe in its management and its product, given its unproven business model. It’s in a very niche business that could yield substantial returns if the company executes well.
The Bottom Line on Cloud Stocks to Buy
Subscription-based cloud software is the new tech gold standard that enables companies to seemingly “print money”. Quarter-over-quarter growth allows investors to be comfortable with absurdly high multiples. Enterprise cloud technology has a lot of growth potential as more firms transition to a digitalized infrastructure. This is becoming a necessity to compete in the digital age.
HubSpot and PagerDuty haven’t yet turned a profit, but they have a bright future if they can execute their business model effectively. As a result, they look like good stocks to buy for risk-tolerant investors.
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
HubSpot, Inc. (HUBS): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Adobe Systems Incorporated (ADBE): Free Stock Analysis Report
Oracle Corporation (ORCL): Free Stock Analysis Report
PagerDuty Inc. (PD): Free Stock Analysis Report
