The key to building a robust investment portfolio is to select stocks with attractive characteristics. If the selection process is done right, you'll end up with a bunch of growth stocks that can continue to power ahead year after year, allowing you to compound your wealth and better prepare you for retirement. Buying and holding these stocks is the key to achieving long-term wealth as their share prices continue marching higher.
Growth stocks that will do well include businesses with catalysts that can propel their revenue and free cash flow higher. They should also possess a strong competitive moat and a sticky customer base that allows them to continue to do well. Let's dig deeper into three growth stocks that could surge this year based on their financial results, business developments, and prospects.
CrowdStrike
CrowdStrike (NASDAQ: CRWD) is a cybersecurity company that offers an artificial intelligence (AI)-driven platform to spot cyber threats and boost its clients' online security. With digitalization being a key driving force for change in many organizations, the need for cybersecurity and threat protection represents a strong tailwind. CrowdStrike's recent financial results for the first nine months of fiscal 2024, ending Oct. 31, demonstrate the business' rapid growth. Total revenue jumped 37.8% from a year ago to $2.2 billion, with subscription revenue making up 94% of the total. Gross profit increased by 41.1% to $1.7 billion, as gross margin improved from 73.5% a year ago to 75.2%. The business also generated a positive free cash flow of $656.6 million for the first nine months, 40% higher than the $467.4 million in the comparative prior year.
Subscription annual recurring revenue has been climbing steadily, too, hitting a new high of $3.2 billion in the third quarter of fiscal 2024 for 35% year-over-year growth. That's more than six times the recurring revenue booked just four years ago and is testament to how rapidly CrowdStrike increased both its bookings and customer base. Sixty-three percent of its customers use five or more modules on its platform, while slightly more than a quarter use seven or more modules, showcasing the success of the software-as-a-service company's land and expand strategy. Management estimates that the total addressable market for AI-native security platforms is around $100 billion in the calendar year 2024, and that figure will rise to $225 billion by calendar year 2028. With such a massive addressable market, CrowdStrike should enjoy a long growth runway that will last for many more years.
Workday
Workday (NASDAQ: WDAY) offers its cloud application for finance and human resources functions with analytics embedded with AI and machine learning. The business also boasts more than 10,000 global customers operating in more than 175 countries, and it serves 70% of the top 50 Fortune 500 companies, demonstrating its broad reach and appeal. Total revenue for the first nine months of 2024 rose 16.8% from a year ago to $5.3 billion, of which subscription services made up 90.7%, or $4.8 billion. The company also generated net income of $192.5 million, reversing the net loss of $241.1 million in the prior year. Free cash flow for the first nine months amounted to $972.3 million, 44% higher than the $676.7 million from a year ago.
Workday continues to enhance its cloud offering with the introduction of AI updates such as generative AI capabilities and a manager insight hub that offers managers automated insights for overseeing their teams. The company also released a new Workday AI Marketplace to help customers locate and launch trusted AI apps within the platform's ecosystem. Just this month, Workday announced a collaboration with Insperity to jointly develop, brand, and market a comprehensive human resources solution for small and medium-sized companies. The company believes it has a total addressable market of around $142 billion, giving the business ample opportunities to capture more business and grow its top and bottom lines.
Netflix
Netflix (NASDAQ: NFLX) is a market leader in streaming services and boasts a wide slate of movies and TV series catering to audiences around the world. The company reported a rise in revenue, profitability, and free cash flow for 2023. Revenue rose 6.7% year over year to $33.7 billion, with operating income climbing 23.5% year over year to $6.9 billion. Net income came in at $5.4 billion for the year, up 20.4% year over year. Netflix saw a big surge in free cash flow generation at $6.9 billion for 2023, up more than fourfold year over year from just $1.6 billion in 2022. Membership levels hit a new high of 260.3 million, up close to 13% year over year, as Netflix's portfolio of movies and TV series continued to attract customers from all over the globe.
There could be more to come for the streaming company this year. Netflix sees a $600 billion revenue opportunity across pay TV, film, games, and branded advertising, but the business makes up only around 5% of this addressable market. TV viewing is still less than 10% in each country, representing a significant untapped opportunity to increase Netflix's reach. The company is also well known for its new, original TV series and the large audiences that gravitate toward some of these titles, allowing Netflix to take the top spot for original TV series and film for 48 and 41 out of 52 weeks, respectively, in 2023.
The streaming TV giant makes use of analytics to understand its customers' preferences and keep them coming back, thereby generating higher retention and also recommending the service to their friends, increasing acquisition.
Netflix can periodically raise its prices to drive additional investment to broaden its slate of movies and TV shows while its advertisem*nt tier is catching on quickly, accounting for 40% of new signups in the ad markets it's targeting. Account sharing has also been nipped in the bud, with the business seeing many more customers signing up for their accounts.
Netflix sees a near-term addressable market of around 500 million connected TV users, excluding China and Russia, that should continue to grow as broadband penetration increases around the world.
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Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike, Netflix, and Workday. The Motley Fool has a disclosure policy.
3 Growth Stocks That Could Skyrocket in 2024 was originally published by The Motley Fool
