The fastest-growing companies can deliver knock-out returns for investors, but establishing a market presence or disrupting an existing industry can result in significant losses that can test an investor's patience. If you're willing to endure the inevitable volatility that comes from investing in aggressive growth stocks, now could be a great time to add Bandwidth (NASDAQ: BAND), Alteryx (NYSE: AYX), and Anaplan (NYSE: PLAN) to a long-term portfolio.
Cashing in on communication
Smart homes are allowing people to communicate in new ways, and that's providing a big tailwind for Bandwidth, a cloud-software company that's enabling voice communication on smart devices such as Google Home digital assistants and Alexa-enabled products.
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It's the only company providing communications platform-as-a-service (CPaaS) over its own, nationwide IP voice network, an advantage it believes allows it to provide better uptime, data analytics, and pricing than its competitors. Currently, its customer list includes 1,300 enterprises paying an average of $150,000 per year. In the future, growth can come from more penetration of existing relationships, winning new customers, and expanding internationally.
Because the company has usage-based contracts, its revenue increases as its customers deploy more voice features in their products. It's also successfully cross-selling services. Its dollar-based retention rate was 118% in 2018, the highest in three years. Attracting new customers with its voice APIs, then expanding those relationships to messaging and 911 emergency-response APIs is paying off.
To secure new relationships, Bandwidth doubled its sales force last year. It's also dipping its toes into Europe for the first time via an existing customer. If all goes well, the company hopes to expand overseas with more of its multinational accounts.
In 2018, Bandwidth's revenue increased to $204.1 million from $163 million in 2017, and in 2019, management's guiding for sales of between $231.5 million to $233.5 million. Because IDC thinks the global market for CPaaS could grow to $10.9 billion in 2022 from $2 billion in 2017, more double-digit top-line increases could be in Bandwidth's future.
Delivering actionable data
In all industries, companies and governments are embracing data analytics solutions to improve operations and save money. Alteryx's drag-and-drop interface allows data scientists to gain greater insight across disparate databases. Retailers are using it to help with merchandising decisions, airlines are using it to improve their fuel hedging, pharmaceutical companies are using it in clinical-trial management, and banks are using it for derivatives modeling.
The company's land-and-expand sales strategy has increased its customers by 82%, compounded annually since Q1 2015 to 4,700. It's doing more business with its existing customers, too. Last year, Alteryx's dollar-based net expansion rate was 132%. The combination of new accounts and sales growth at existing accounts translated into sales of $254 million in fiscal 2018, up 55% from fiscal 2017.
As its business scales, Alteryx is making solid progress toward consistent profitability. Non-operating margin was 19% in fiscal 2018, up from negative 5% in FY2017 and negative 23% in FY2016. As a result, the company's earnings per share was $0.82 last year.
In the future, growth could benefit from increasing sales internationally. International sales grew 96%, to $18 million in the fourth quarter. The big data and analytics market is worth $49 billion globally, according to IDC, so there's still plenty of room to grow. In 2019, management's guiding for revenue to increase 36%, to $345 million, making this a top stock that growth investors can consider buying.
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Planning for profits
In the past, planning at large companies relied on backward-looking, disparate data sets that were often widely inaccessible. Planning based upon this information was hamstrung by an inability to see exactly how changes could impact future business performance, creating headwinds to success.
Anaplan's unified, cloud-based software solution improves planning by allowing thousands of concurrent users instant access to the information they need. Incorporating artificial intelligence and machine learning, Anaplan's predictive tools give executives and managers immediate insight into how changing inputs will impact forecasts and budgets.
Like these other two companies, Anaplan's growth is coming from expanding within its existing customers and attracting new customers. Its largest 10 customers produce an average $4 million plus annually in sales, and its net expansion rate has exceeded 120% in each of the past three fiscal years, including a 123% rate in fiscal 2019.
Over 1,100 companies are using the company's solution worldwide, including 248 that produced over $250,000 in annual recurring revenue in fiscal 2019, up from 181 customers in fiscal 2018 and 113 customers in fiscal 2017.
Anaplan's sales grew 43% year over year, to $240.6 million in fiscal 2019 and in fiscal 2020, revenue is expected to eclipse $310 million. Since its addressable market is over $20 billion and it's only working with 250 of the Fortune 2000 companies, it isn't a stretch to think revenue will continue climbing.
Overall, Bandwidth, Alteryx, and Anaplan offer investors an opportunity to profit from significant sales growth, and that makes each an intriguing stock to own in risk-tolerant, long-term portfolios.
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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Alteryx. The Motley Fool has a disclosure policy.