1 Top Growth Stock You'll Regret If You Didn't Buy Immediately Before It Skyrockets - Latest Global News

1 Top Growth Stock You’ll Regret If You Didn’t Buy Immediately Before It Skyrockets

Data streaming platform provider Confluent (NASDAQ:CFLT) hasn’t received much attention on the stock market. The company’s shares have risen just 25% over the past year, underperforming the Nasdaq-100 Technology Sector Index’s 49% rise over the same period.

However, things are likely to change in 2024. Confluent started the year with solid results for the fourth quarter of 2023 and has now continued its performance with another impressive result for the first quarter of 2024. The company released its first-quarter results on May 7, and shares rose more than 8% the following day.

Let’s look at why investors cheered Confluent’s latest results.

Confluent fluctuations result in a profit and exceed analyst expectations

Confluent’s first-quarter revenue increased 25% year-over-year to $217 million and the company posted non-GAAP (adjusted) earnings of $0.05 per share compared to a loss of $0.09 US dollars per share in the same period last year. The numbers beat Wall Street expectations as consensus estimates were for adjusted earnings of $0.02 per share on revenue of $211.6 million.

More importantly, Confluent exceeded its impressive results with solid guidance. The company expects current quarter revenue of $229.5 million and earnings of $0.045 per share, near the middle of its guidance range. That would mean an increase in sales of just over 21% compared to the same period last year. In addition, Confluent broke even in the same quarter last year, so profits are expected to rise again.

Analysts forecast Confluent’s current quarter revenue of $228.7 million. However, thanks to the impressive traction the cloud and subscription business has gained, the company expects it to do better. Confluent Cloud, a fully managed software-as-a-service platform that enables customers to connect, store, manage and access their data in continuous, real-time streams, reported a 45% year-over-year revenue increase last quarter to $107 million.

Additionally, Confluent’s subscription revenue increased 29% year-over-year to $207 million, indicating that the company now derives almost all of its business from subscription-related sales. The good news for investors is that the company is adding customers at a good pace and they are also spending more money on its offerings.

Confluent’s total customer count increased 9% year-over-year to 5,120 in the most recent quarter. More importantly, the number of customers who contributed more than $100,000 in annual recurring revenue (ARR) to the company increased 17% year-over-year to 1,260 in the most recent quarter. Customers with ARR of at least $1 million increased even faster, up 24% to 168, compared to the same period last year.

More importantly, Confluent’s existing customers are either adopting more of the company’s products or using the products they already use more frequently. This is evident from the company’s dollar-based net retention rate, a metric that compares the ARR generated by its customers at the end of a quarter with the ARR generated by the same customers in the prior-year period.

Confluent’s dollar-based net retention rate was between 120% and 125% last quarter, and a score above 100% in this metric is evidence that the company is winning a greater share of customer dollars. This increase in spending from existing customers and an increase in the number of large customers is positively impacting Confluent’s margins. This is evident from the fact that the gross margin increased by 4.7 percentage points year-on-year in the last quarter.

Additionally, the above points explain why Confluent increased its full-year revenue guidance to $957 million from its previous estimate of $950 million. The company also raised its 2024 earnings expectation to a range of $0.19 per share to $0.20 per share from the previous estimate of $0.17 per share. That would be a big increase from 2023 earnings of $0.04 per share.

Additionally, analysts expect Confluent to maintain an excellent growth pace over the next five years, which is not surprising given the company’s tremendous end-market opportunity.

The stock appears poised for tremendous long-term growth

Confluent estimates it has a total addressable market of $60 billion in 2022. By 2025, the company expects the addressable market to grow to $100 billion. The company’s total revenue estimate for 2024 suggests that it is merely scratching the surface of a huge opportunity. Unsurprisingly, analysts are forecasting an improvement in Confluent’s revenue growth rate over the next few years.

CFLT sales estimates for the current fiscal year.  diagram

CFLT sales estimates for the current fiscal year. diagram

CFLT sales estimates for current fiscal year data from YCharts

Even better, analysts expect Confluent’s bottom line to just take off and post a CAGR of 124% over the next five years. Based on earnings of $0.04 per share in 2023, Confluent’s earnings could reach $2.25 per share by the end of 2028 if the company can actually grow at that pace. It will come as no surprise that Confluent is actually achieving such great growth due to the huge addressable market it is in.

Assuming Confluent’s earnings rise to $2.25 per share in 2028 and the company trades at 30 times earnings at that point, which is a multiple of the Nasdaq-100, the stock price could rise to $67. That would be a 123% increase from current levels, which is why investors who haven’t already purchased this growth stock should consider doing so immediately before it skyrockets.

Should you invest $1,000 in Confluent now?

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Confluent. The Motley Fool has a disclosure policy.

1 Top Growth Stock You’ll Regret If You Didn’t Buy Immediately Before It Soars was originally published by The Motley Fool

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