While the bull run has been amazing, the returns have still been concentrated among the mega-cap tech companies like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). So then what might be some of the other growth stocks to consider — perhaps those that have not received as much attention? Well, one place to look is mid-cap stocks. These are companies that have market values that generally range from $2 billion to $10 billion.
Such companies often have considerable runway for growth. They also may be more nimble and have modern products. Thus, mid-cap stocks can be fertile ground for finding some very interesting opportunities.
And hey, some of these companies may one day become the mega-cap companies — which means the returns can be off the charts.
So then which look good right now? Let’s take a look at seven that offer great growth potential:
- Alteryx (NYSE:AYX)
- Appian (NASDAQ:APPN)
- Plug Power (NASDAQ:PLUG)
- HealthEquity (NASDAQ:HQY)
- BlackLine (NASDAQ:BL)
- Elastic (NYSE:ESTC)
- Fiverr International (NYSE:FVRR)
Mid-Cap Stocks: Alteryx (AYX)
Alteryx operates a platform that helps companies improve their use of data, such as for analytics and machine learning. But the summer has been cruel for the company’s shares. On news of its latest earnings report, AYX stock plunged from $178 to $109 or so.
Yet it seems more like an overreaction. And yes, AYX stock certainly looks like a much better value now.
Granted, the company has experienced delays with sales because of the novel coronavirus. As a result, AYX provided not-so-good guidance for the second half of the year. The third quarter is expected to see growth of only 9% and the following quarter may be negative. It is a big fall-off from the sizzling 50%-plus ramp in 2019.
However, AYX appears to be taking a fairly conservative approach with its forecasts — which is smart. Besides, when it comes to a company like this, the long term still looks bright. The fact is that digital transformation is a megatrend and companies will need to spend more on their data so as to be more competitive.
It’s extremely difficult for mature companies to transition to new technologies like cloud computing, microservices and artificial intelligence. But there are emerging new approaches to help out. One is called Low-Code, which involves less intensive methods for customizing existing IT systems or creating new apps.
A growth stock to buy in this space is Appian. The company’s technology often can be implemented successfully in weeks, not months. The result is that there is generally a high return on investment.
During the second quarter, revenues jumped by 30% to $29.6 million and the gross renewal rate was 98%. The logo wins were actually double the rate in the first quarter.
Covid-19 has been a catalyst, as companies have had felt urgency to embrace automation. Appian has also recently acquired a company in the robotic process automation (RPA) industry, which is one of the hottest areas of enterprise software.
All in all, the momentum should help to continue to propel APPN stock.
Mid-Cap Stocks: Plug Power (PLUG)
Fuel cell provider Plug Power has been around for over two decades. For much of the time, the company has struggled.
But lately, things have been perking up. Keep in mind that PLUG stock has been one of the hottest for the year — and the momentum should last.
The company’s strategy has evolved, in which there has been an expansion of its target markets. The result is that PLUG has been able to see a nice acceleration in growth. For the second quarter, billings increased by 24% to $72.4 million. The key driver was the GenDrive fuel cell, which has an install base of more than 35,000. As for this year, the company has deployed about 5,000.
Note that fuel cells are more than about clean energy. They also provide significant cost efficiencies. This is why companies are looking to use them even while the economy falters. Consider that PLUG has customers like Kroger (NYSE:KR), Amazon and Walmart (NYSE:WMT).
Another key to the success has been a smart acquisition strategy, with deals for operators like United Hydrogen and Giner ELX. Moreover, with PLUG’s market capitalization expanding and its balance sheet getting stronger, the company will be positioned for even more dealmaking.
HealthEquity operates a platform that allows employers to provide cost-effective healthcare options to employees. The offerings include health savings accounts (HSAs), flexible spending accounts (FSAs), health reimbursement arrangements and and commuter benefits.
Among all these, the main one is HSAs. HQY administers roughly 5.4 million accounts, with $11.5 billion in assets. The company’s market share has gone from 4% in 2010 to 16% in 2019.
Covid-19 has negatively impacted HQY stock, which has gone from $87 in March to $60. Some of the factors have included lower interest yields as well as the inability of customers to spend on healthcare during the extended lockdown and the spike in unemployment.
Yet despite this, HQY has still been able to find growth. In the latest quarter, there were 104,000 new HSAs.
In the years ahead, the prospects for HQY stock do look bright. There is a trend toward consumer-directed health benefits — and the company looks ready to ride that wave.
Mid-Cap Stocks: BlackLine (BL)
BlackLine is not a particularly exciting company. It develops cloud-based software that helps with accounting functions such as closing the books, account reconciliations and control assurance. But then again, such things are absolutely essential. They have also meant that BL stock has been fairly solid.
In the quarter, revenues increased by 20% to $83.3 million and the operating cash flows came to $9.6 million, up from $8.6 million in the same period a year ago. The company added 82 net new customers for a total of 3,138. The user base was at 277,426.
To deal with the Covid-19 crisis, BlackLine released a system that allows for remote audits. According to CEO Therese Tucker on the earnings call: “As priorities continue to shift and budgets contract, companies must figure out how to automate and transform. We believe these challenges present an opportunity for finance leaders to move beyond legacy accounting processes and prepare their organizations for the future of work with changes that will outlast the pandemic.”
In other words, this should make it a good choice among mid-cap stocks to buy for growth
Elastic is a search engine for the enterprise. The software started as an open-source project, which allowed for global distribution. Elastic was also smart enough to acquire various other projects.
To generate revenues, the company has developed a proprietary version of its software. This has allowed the company to greatly expand its market opportunity. And yes, ESTC stock has certainly benefited.
In the fiscal fourth quarter, the revenues soared by 53% to $123.6 million and the total subscription customer count was over 11,300, up from 8,100 during the same period a year ago. The net expansion rate was over 130%, showing the strong momentum behind the business.
By using the open-source model, Elastic has been able to leverage a large community to allow for much more innovation. In the quarter, the company released its latest version of its platform, which allows cleaner and simpler search, alerts for workflows, asynchronous search and case management.
Keep in mind that Forrester estimates that there will be a 3x increase in the enterprise search market during the next three years. The firm also believes that Elastic’s Workplace Search is a top solution in the space.
Mid-Cap Stocks: Fiverr International (FVRR)
Fiverr operates a digital marketplace that allows people to buy and sell services. There are over 300 categories, called Gigs, that cover areas like logo design, website creation, blog writing and so on. The prices for Gigs start at $5.
The growth has definitely been strong. In the latest quarter, revenues spiked by 82% to $47.1 million and the number of active buyers increased by 28% to 2.8 million. The average spending per buyer was $184, up from $157 on a year-over-year basis.
But the growth is likely to continue for some time. Here’s what the CEO and co-founder of the company, Micha Kaufman, said on the earnings call:
“The inflection point on the adoption of remote work — which many of you have asked us about in the past — is within sight. The awareness, openness, and emphasis on remote work and digital transformation has taken a multi-year leap for the entire business community.”
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.