TI have Nasdaq Composite has tumbled deep into bear market territory, plunging 33% from its high. That sharp decline has been fueled by rampant inflation and rapidly rising interest rates, both of which have left many investors feeling sour about the economy. Of course, no one knows if a recession is coming, but even if you did, it wouldn’t change the importance of a long-term mindset.
According to data from JPMorganthe S&P 500 rose about 517% between January 2002 and December 2021. But if you had missed the 10 best days during that time, your total return would have been just 183%. More importantly, seven of the 10 best days actually took place during the Great Recession, meaning the best strategy was to buy and hold through the downturn.
With that in mind, now is a good time to put money into the market, and both of these growth stocks look ripe for the picking.
1. DigitalOcean Holdings
Cloud computing allows businesses to provision services like computer, storage, and developer tools through the internet. The industry is dominated by tech titans like amazon and microsoft, both of which offer an extensive number of cutting-edge products. However, those products are typically geared toward larger businesses, as they require robust IT support.
DigitalOcean Holdings (NYSE: DOCN) simplifies cloud computing for small businesses. Its portfolio includes a growing number of infrastructure and platform services, all of which can be deployed in minutes, without any formalized training. DigitalOcean also provides 24/7 customer and technical support, as well as an expansive library of developer tutorials. In short, the company is capitalizing on an overlooked niche in a massive industry, which has translated into strong financial results.
DigitalOcean’s customer base grew 6% to 623,000 in the past year, and the average customer increased its spending by 17%, evidencing a successful land-and-expand growth strategy. To that end, revenue climbed 36% to $462 million, and DigitalOcean generated positive free cash flow of $33 million, up from a loss of $35 million in the prior year.
Going forward, shareholders have good reason to be bullish. DigitalOcean puts its addressable market at $72 billion in 2022, but the company is rolling out new products at a rapid clip. That includes the recently introduced serverless platform, DigitalOcean Functions, which allows developers to build and scale applications without managing the underlying infrastructure.
More broadly, 14 million new small businesses are created each year, meaning DigitalOcean’s niche market is growing rapidly. If the company continues to execute on its land-and-expand strategy, this stock growth could go parabolic in the coming decade.
With that in mind, the stock currently trades at 9.8 times sales, a discount to its historical average of 14.1 times sales since going public in March 2021. That’s why now is a good time to buy a few shares.
Paycom Software (NYSE: PAYC) is a human capital management (HCM) software vendor. Its platform includes tools for employee hiring and training, scheduling and payroll, and human resources processes like benefits administration. Each software product is built on a single system of record, meaning administrators don’t have to manage employee data across multiple systems. That gives Paycom an edge, because many businesses currently rely on a patchwork of software to meet their HCM needs.
Paycom also incorporates self-service functionality to further reduce the administrative burden. Using the mobile app, employees can update personal information, request scheduling changes, and manage their benefits. To that end, Paycom makes HCM less complicated for businesses, helping them manage the full employee lifecycle from a single platform.
That has translated into strong financial results. Revenue climbed 30% to $1.1 billion in the past year, and free cash flow soared 50% to $212 million.
Looking ahead, Paycom is well positioned to maintain that momentum. It has captured only 5% of its total addressable market, but the company is bolstering its sales force and adding new products to its portfolio. For instance, Paycom launched Beti (Better Employee Transaction Interface) last year, the industry’s first self-service payroll solution. That type of innovative thinking should keep the company on the leading edge of the HCM industry.
With that in mind, shares of Paycom trade at 13.6 times sales, a bargain compared to the five-year average of 19.4 times sales. That’s why this growth stock is worth buying now.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Amazon and Paycom Software. The Motley Fool has positions in and recommends Amazon, DigitalOcean Holdings, Inc., Microsoft, and Paycom Software. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.