Except for energy stocks, 2022 has been a very difficult year to find any equities able to perform well in these volatile markets. And high-growth stocks have been hit especially hard.
Consider this: The iShares Russell 1000 Growth ETF (IWF), which tracks the performance of the Russell 1000 Growth Index, is down 23% year-to-date, compared to a 14% decline for the S&P 500 and a 6% dip for its counterpart, the iShares Russell 1000 Value ETF (IWD).
However, if you are looking to invest over a longer period – say, anything more than three years – high-growth stocks are a great place to put a portion of your overall investment portfolio.
The iShares ETF of growth stocks mentioned earlier has delivered positive returns in nine out of the past 10 years; the only exception was a 1.7% decline in 2018. Yes, past performance doesn’t guarantee future returns, but high-growth stocks remain an excellent strategy for improving a portfolio’s overall performance over time.
Today, we’re going to look at 10 of the best high-growth stocks to buy. We have selected 10 picks from the S&P Composite 1500 Index – made up of the S&P 500, S&P MidCap 400 and S&P SmallCap 600 – that meet a number of criteria. They must have produced at least 20% average compound annual growth in revenues over the past five years, analysts must expect an average of 20% growth in both revenues and earnings over the next two years, and each of them must enjoy at least a consensus Buy (if not Strong Buy) rating from Wall Street’s analyst community.
It’s a small and exclusive club. Let’s take a look.
Data is as of June 1. Analyst ratings courtesy of S&P Global Market Intelligence. Stocks listed in reverse order of analysts’ consensus ratings, where the lower the score, the better the consensus ranking.
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Tandem Diabetes CareGetty Images
Market value: $4.2 billionAnalysts’ ratings: 5 Strong Buy, 2 Buy, 4 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.91 (Buy)The main product from Tandem Diabetes Care (TNDM, $65.67) is pushing the innovation envelope to help its customers cope with their diabetes. Its main product is the t:slim X2 insulin pump, which can hold up to 300 units of insulin but is 38% smaller than some of the competition.
As of early May, the company boasted more than 350,000 customers worldwide. For the most part, those customers have type 1 diabetes, vary in age, are a mix of men and women, and use continuous glucose monitoring (CGM).
Since 2012, this healthcare stock has grown from negligible revenues to projected sales of at least $850 million in 2022. Tandem plans to grow its global installed base of customers from its current level to 1 million people (though it admittedly doesn’t provide a timeline). But that growth will start here in the U.S., where 1.8 million people suffer from type 1 diabetes. Of these, only 36% use an insulin pump; the rest are on multiple daily insulin (MDI) therapy.
However, the opportunity outside the U.S. is even greater; just 12% of people with type 1 diabetes in the countries Tandem serves opt for a pump. And none of this takes into account the worldwide opportunity to serve people with type 2 diabetes. TNDM estimates there are 9 million people worldwide with type 2 who require intensive insulin therapy, and just 5% use a pump.
Tandem has been an extremely high-growth stock over the past half-decade, with a revenue compound annual growth rate (CAGR) of 52.8% over that time, according to S&P Global Market Intelligence. That’s projected to drop to 20.9% over the next two years, according to analyst estimates, but that could be a conservative outlook given how many opportunities are available to Tandem.
The company recently estimated that it would grow sales in 2022 by 22% year-over-year (YoY) at the midpoint of its guidance, which is up from its previous outlook. Meanwhile, it expects adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin to be 14.5% at the midpoint. Assuming Tandem meets its guidance, TNDM is trading at just 5 times its projected 2022 sales.
While TNDM shares did sell off following the report, Raymond James analyst Jayson Bedford believes that’s an overly harsh reaction.
“While some investors may be critical of the 2022 guidance (slightly less than the 1Q beat), we believe this view is short-sighted,” says Bedford, who rates the stock at Outperform (equivalent of Buy). “First, at this level, there is no reason for management to be a hero, and second, we believe the guide still leaves ample room for potential upside, which supports multiple expansion.”
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SolarEdge TechnologiesGetty Images
Market value: $15.1 billionAnalysts’ ratings: 12 Strong Buy, 7 Buy, 5 Hold, 1 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.80 (Buy)SolarEdge Technologies (SEDG, $272.48) manufactures and sells direct current (DC) optimized inverter systems to residential and commercial solar installations. Since SolarEdge commercialized the system in 2010, it has shipped over 31.6 gigawatts (GW) of these systems to customers in more than 133 countries.
On May 2, SolarEdge reported record first-quarter 2022 revenue of $655.1 million, up 19% from Q4 2021 and 62% higher than the year-ago period. Non-GAAP (generally accepted accounting principles) net income was $68.8 million up 10% sequentially and 24% YoY. Both figures topped analyst estimates.
BMO Capital Markets analyst Ameet Thakkar notes that cost challenges persist, evidenced by the company’s adjusted gross margin guide of 26% to 29% for the second quarter of 2022. However, he maintains an Outperform rating on the stock, saying the “ramp-up of Mexico manufacturing line, falling shipping prices pointing to a stronger 2H 2022. Furthermore, European growth already looks substantial and will be a multi-quarter if not multi-year difference maker.”
The Israel-based company executed its initial public offering (IPO) at $18 per share in March 2015. In the seven years since, SEDG shares have appreciated by more than 1,400%. Over the same period, it grew revenues by about 1,370%, from $133.2 million in fiscal 2014 (June year-end) to $1.96 billion in the trailing 12 months ended March 31.
Earlier this year, the company sold 2.3 million of its shares at $295 each, raising net proceeds of $650.5 million. It plans to use the proceeds for general corporate purposes, including possible acquisitions. As a result, SolarEdge finished the first quarter with $1.2 billion in cash and marketable securities compared to just $724.1 million in total debt.
Analysts surveyed by S&P Global Market Intelligence estimate SolarEdge will grow sales by 36.6% annually over the next two years, while profits should jump by 39.3%. Meanwhile, SEDG trades at an enterprise value that’s 6.6 times sales – less than Sunrun (RUN) at 7.5 and Enphase Energy (ENPH) at 16.3. So not only is SolarEdge one of the best high-growth stocks on the market right now, but it’s also a relative value.
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Paylocity HoldingGetty Images
Market value: $9.7 billionAnalysts’ ratings: 9 Strong Buy, 5 Buy, 3 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.65 (Buy)Paylocity Holding (PCTY, $175.09) provides payroll and human capital management (HCM) software solutions. Its competition includes Paycom (PAYC), Ceridian HCM Holding (CDAY) and Automatic Data Processing (ADP).
Like many of its competitors, most of Paylocity’s revenue is recurring, making the sales process a little easier. In the first nine months of fiscal 2022 (June year-end), its revenues increased to $620.8 million, up by 33.4% from $465.2 million in the same period a year earlier. On the bottom line, its adjusted EBITDA was $178.5 million – 34.4% higher than the $132.8 million it earned a year ago.
Paylocity expects to finish fiscal 2022 with revenue of $841.2 million at the midpoint of its guidance, 32% higher than fiscal 2021. In addition, its outlook for adjusted EBITDA is $229.5 million at the midpoint, which would be 35% higher than in 2021. Should the company meet its 30% revenue projection in Q4, that would mark the fourth consecutive quarter that PCTY has registered at least 30% growth.
The company estimates that the total addressable market (TAM) of businesses with between 10 and 5,000 employees is $16 billion. It currently has 2% of the 1.3 million businesses in this market. Paylocity gets a significant portion of its new clients from ADP and Paychex (PAYX).
Paylocity invests heavily in research and development (R&D) to continue growing. Over the past five fiscal years, it has more than doubled its R&D spending from $39 million in fiscal 2017 to $94 million in 2021. Over the same period, R&D spending per employee per year (PEPY) jumped 47% to $420.
Paylocity has a chance to remain among Wall Street’s best high-growth stocks despite the industry’s intense competition.
“Given the nature of the macro, we continue to believe PCTY remains one of the more attractive names in software given its ability to take price and benefit from a rising rate environment,” says Needham’s research team, which rates the stock at Buy.
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Innovative Industrial PropertiesGetty Images
Market value: $3.7 billionAnalysts’ ratings: 4 Strong Buy, 3 Buy, 1 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.63 (Buy)If Innovative Industrial Properties (IIPR, $132.82) looks familiar, perhaps you read about it in Kiplinger’s best marijauana stocks to buy now.
Unlike many of the names on this list of high-growth stocks, IIPR is a real estate investment trust (REIT) that owns greenhouses and industrial facilities that are retrofitted to accommodate medical marijuana licensed producers. It currently owns 105 in 19 states.
S&P Global Market Intelligence suggests that IIPR’s revenues have grown by 238.9% annually over the past five years. Over the next two, this REIT is projected to grow revenues, on average, by 30.1% and 26.1%, respectively.
That’s extremely healthy growth for a REIT.
In April, Innovative Industrial Properties was targeted by short seller Blue Orca Capital, which alleged that its real estate portfolio had significantly degraded, referring to IIPR as a high-risk cannabis bank. The REIT denied the arguments put forth by Blue Orca, suggesting that the short seller didn’t understand the infrastructure improvements required to enable a licensed medical marijuana producer to grow cannabis indoors.
Although short-seller reports like this have been floating around for a couple of years, this one has resulted in a class-action lawsuit against the REIT. While lawsuits like these often don’t result in significant action, prospective investors should nonetheless know that’s a current risk and keep tabs on this legal matter.
As the marijuana industry continues to grow in the U.S., IIPR has an excellent opportunity to continue leveraging a large share of the medical marijuana industry’s growing facilities. For example, in 2021, legal recreational and medical cannabis sales eclipsed Starbucks’ (SBUX) North American sales.
Bud is big and getting bigger.
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NvidiaGetty Images
Market value: $458.0 billionAnalysts’ ratings: 26 Strong Buy, 9 Buy, 7 Hold, 1 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.60 (Buy)Morgan Stanley analyst Joseph Moore reinstated Nvidia (NVDA, $183.20) coverage on May 3 with an Equal Weight rating (equivalent of Hold) and a $217 target price. The analyst believes the semiconductor stock’s products in the cloud, artificial intelligence, and gaming markets set it apart from its peers in the semiconductor industry.
That rating mostly has to do with the company’s valuation – it trades at 15.7 times sales compared to 6.8 for rival Advanced Micro Devices (AMD). However, thanks to the company’s high-performance computing and cloud businesses, the analyst considers NVDA a core holding and is bullish on the company’s long-term products.
“Nvidia remains one of the best growth names in the semis space,” Moore says, adding that “Our approach is to at least maintain a market weighting in the stock, and look for spots for an overweight.”
In other words, NVDA is a great high-growth stock – just buy it when it’s down.
According to S&P Global Market Intelligence, Nvidia’s estimated annual revenue and earnings per share growth over the next two years is 23.0% and 23.4%, respectively. In addition, Nvidia’s levered free cash flow (FCF, the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments to grow its business) is expected to grow by 42.4% annually. Again, here, Nvidia isn’t cheap – it currently trades at 70 times its levered FCF of $6.47 billion.
But consider anecdotes like this. Nvidia recently profiled Scythe Robotics, a Colorado-based company developing a commercial electric self-driving lawn mowing robots-as-a-service business. The startup is part of the Nvidia Inception program that helps technology businesses utilize its products to evolve faster. Scythe’s M.52 lawn mower uses Nvidia’s Jetson AGX Xavier edge artificial intelligence computing modules to cut grass without any assistance from human operators.
It’s products like the M.52 that give Nvidia such a large growth runway.
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STAAR SurgicalGetty Images
Market value: $3.1 billionAnalysts’ ratings: 6 Strong Buy, 1 Buy, 2 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.56 (Buy)STAAR Surgical (STAA, $65.20), the maker of Visian Implantable Collamer Lens (ICLs), has been in the ophthalmology business for more than 30 years, with more than 1 million Visian ICLs implanted to date.
STAAR reported record first-quarter results on May 4 that beat analyst estimates for both revenue and earnings. Sales of $63.2 million were $2.67 million than the consensus estimate, and profits of 29 cents per share were 14 cents better than the Street’s views. The company’s Q1 highlights included a 29% increase in unit sales for its ICLs, with strong growth in China (37% higher), Japan (35%) and India (34%). ICL sales accounted for 93% of overall revenues last quarter – and 96% of those revenues are generated outside America.
However, soon, STAAR will be able to sell its EVO Visian ICL lenses right here in the U.S.
“We believe STAAR Surgical can sustain >20% revenue growth, driven by a domestic EVO launch, continued EVO adoption internationally, and an international Viva launch,” says a Needham research team, which rates the stock at Buy. “We also expect STAAR Surgical to see meaningful margin improvement resulting in durable double-digit earnings growth.”
STAAR’s projected revenues in 2022 are $295 million, 28% higher than in 2021. With the U.S. coming online for its leading product, it wouldn’t be surprising if its sales met and exceeded expectations. However, the S&P Capital IQ two-year CAGR estimate for sales is 27.3% – slightly below the company’s growth estimate. It also has a two-year EPS CAGR estimate of 24.0%.
Meanwhile, a consensus price target of $101 per share implies more than 55% stock upside over the next 12 months alone, easily putting STAA shares among the most attractive high-growth stocks on this list.
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Celsius HoldingsGetty Images
Market value: $5.0 billionAnalysts’ ratings: 5 Strong Buy, 2 Buy, 1 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.50 (Buy)Celsius Holdings’ (CELH, $65.87), the maker of fitness beverages, is not having a good year in the market. CELH shares are down 12% year-to-date and nearly 36% from their November 2021 highs.
But the Florida-based company’s growth remains intact.
According to S&P Global Market Intelligence, Celsius has grown its top line by 69.1% annually over the past half-decade. Over the next two years, it’s expected to continue growing at a 55% annual clip. Meanwhile, profits are expected to roughly triple annually through the end of 2023 – a far greater pace than even the other high-growth stocks on this list.
In May, Celsius reported record first-quarter results. Revenues of $133.4 million were up 167% year-over-year, including a 217% jump in domestic revenue. Gross margins were off a bit, to 40.4% from 41.1% a year ago, but net income jumped from $585,000 to $6.7 million.
“The company said it told retailers in April it would increase U.S. prices effective 3Q21, though did not specify the size,” add Stifel analysts, who rate the stock at Buy. “Pricing will benefit gross margin, and we think have a minimal impact on volumes following Monster’s recent disclosure it would lift prices Sept. 1.”
Other good news regarding the company’s functional energy brand is the market share on Amazon. It is the second-largest energy drink with a 20.24% market share, almost 700 basis points higher than Red Bull, while only 419 basis points behind Monster for top market share.
A few more quarters like the last one should put it very close to the top spot on Amazon.
Like most high-growth stocks, owning CELH comes with above-average volatility. But, if you can handle the risk, it has seemingly great potential now.
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PDC EnergyGetty Image
Market value: $8.2 billionAnalysts’ ratings: 9 Strong Buy, 4 Buy, 1 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.43 (Strong Buy)Like most oil and gas stocks, PDC Energy (PDCE, $82.44) is having an excellent year in the markets. The Denver-based energy company, which operates in the Wattenberg Field in Colorado and the Delaware Basin in West Texas, is up 69% year-to-date and 82% over the past year.
As you can see from the figures above, analysts like what PDCE has to offer. The 14 pros covering the stock believe PDC Energy has the potential to be among Wall Street’s highest-growth stocks, offering up a consensus 12-month target price of $105.29. That implies another 28% in share-price upside on top of an already go-go year.
These same pros project 43.4% revenue CAGR over the next two years (which would easily exceed its five-year revenue CAGR of 38%), as well as roughly 50% annual average profit growth.
On May 4, the company announced first-quarter results that included 199,000 barrels of oil equivalent per day (Boe/d) at a weighted average price of $49.23, 13% higher than in Q1 2021. Its production costs were $8.09 per Boe, so its adjusted net income in the quarter was $358.6 million, 27% higher than a year ago.
PDC Energy closed its acquisition of Great Western Petroleum on May 6. It paid $1.3 billion for the Wattenberg Field operator – it did so by paying $543 million in cash, issuing 4 million shares and assuming Great Western’s debt. Great Western’s production is between 50,000 and 55,000 Boe/d, 42% of which is oil.
In 2022, PDC Energy expects production to be at least 225,000 Boe/d, accelerating into the second half of the year. Approximately 36% are from oil, the rest from natural gas and natural gas liquids (NGLs).
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OptimizeRxGetty Images
Market value: $457.8 billionAnalysts’ ratings: 3 Strong Buy, 2 Buy, 0 Hold, 0 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.40 (Strong Buy)OptimizeRx (OPRX, $25.22) is a healthcare technology company that helps life sciences companies, healthcare providers, and patients engage with each other throughout the patient care journey. It does business with virtually all of the top 20 pharmaceutical companies by revenue, including AbbVie (ABBV) and Pfizer (PFE).
The company’s revenue has grown by 49.5% annually over the past half-decade. Over the next two years, 49.5% annually over the past decade. Over the next two years, its CAGR for revenue and EPS is 36.2% and 71.5%, respectively.
On May 4, it reported Q1 2022 earnings that included a 22% increase in revenue to $13.7 million. The average revenue per top 20 pharmaceutical companies during the quarter was $2.55 million, 20.3% higher than a year earlier. The revenue from its top 20 customers accounted for 76% of the company’s overall sales, down slightly from 77% a year earlier.
While Q1 gross margins improved by 4 percentage points to 59%, higher expenses related to growing its workforce inflated operating expenses by 75% to $11.9 million. As a result, OptimizeRx lost $98,301 on a non-GAAP basis, down from a profit of $566,097 in Q1 2021.
The 145% increase in its cash flow to $4.08 million was an encouraging sign, however. So was the $89 million in cash on its balance sheet against no long-term debt.
For the full year in 2022, OPRX expects to generate $82.5 million in revenue at the midpoint of its guidance. That’s 35% growth compared to 2021. Further, it expects gross margins to be as high as 60%.
Another development that could keep OPRX among the market’s high-growth stocks: In Q1, it completed the acquisition of EvinceMed, a technology platform that provides end-to-end automation for specialty pharmaceutical transactions. In 2019, specialty drug purchases accounted for $218.6 billion, or 45% of the total pharmacy spending in the U.S.
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ServiceNowGetty Images
Market value: $95.2 billionAnalysts’ ratings: 25 Strong Buy, 8 Buy, 1 Hold, 1 Sell, 0 Strong SellAnalysts’ consensus recommendation: 1.37 (Strong Buy)Of the 35 analysts covering ServiceNow (NOW, $475.13) stock, 33 rate it a Buy or Strong Buy, making it the pros’ most popular high-growth stock to buy on this list.
The cloud-based enterprise software company reported earnings on April 27 that exceeded analyst expectations. On the top line, it had revenues of $1.72 billion in the first quarter, $20 million higher than the consensus estimate and 27% higher than a year ago. On the bottom line, it earned $1.76 per share, which was 6 cents better than the consensus estimate.
“We are in a sustained demand environment. Companies are investing with a sense of urgency in technologies that get them to the right outcomes, fast,” ServiceNow CEO Bill McDermott said in the Q1 2022 press release. “It’s very clear that businesses can no longer revert to the ‘status quo.’ We’re now in a tech-to-compete world.”
That’s unlikely to change as more people work from home. The first quarter finished with a current remaining performance obligation (CRPO) of $5.69 billion.
One concern for Constellation Research analyst Holger Mueller is that it had very little sequential growth in the quarter, up 8.0% in Q1 2022, to $1.76 billion, from $1.63 billion in Q4 2021.
However, ServiceNow’s full-year guidance remains healthy. It expects sales to grow by 28% in 2022 on a non-GAAP basis, excluding currency, and a free cash flow margin of 31%. Given that shares have lost more than a quarter of their value in 2022, NOW has also become a value play among high-growth stocks.