Tech-oriented investors who worry about limits to growth among the biggest names, such as members of the FAANG and FAAMG groups, might do well to consider some of the smaller, up-and-coming players, per MarketWatch columnist Philip Van Doorn. Particularly noteworthy are a group of young tech companies tracked by Bessemer Venture Partners that are delivering eye-popping gains in 2018, partly driven by brisk sales growth.
|Stock||Ticker||YTD Gain||Sales Growth||Business|
|Mimecast Ltd.||MIME||56%||38%||Cloud security & risk management|
|Wix.com Ltd.||WIX||84%||37%||Website design|
|Atlassian Corp. PLC||TEAM||44%||34%||Enterprise software|
|HubSpot Inc.||HUBS||58%||32%||Marketing and sales software|
|Instructure Inc.||INST||36%||32%||Software-as-a-Service (SaaS)|
|ServiceNow Inc.||NOW||38%||32%||Enterprise cloud solutions|
|Zendesk Inc.||ZEN||70%||30%||Customer service platforms|
|AppFolio Inc.||APPF||55%||30%||Property manager & legal applications|
Source: MarketWatch; stock price gains through June 21; sales growth is on a per-share basis for last 12 reported months as computed by Bessemer Venture Partners using FactSet data.
These companies are among the 10 members of the Bessemer Venture Partners Cloud Index that have achieved sales per share growth of 30% or more during their last 12 reported months. The index contains 50 public companies that earn more than half their revenues from cloud computing products and services. Companies in the index typically provide business-oriented software through the cloud, and collect recurring revenues on a subscription basis.
The BVP Cloud Index was created in 2013, with data back tested to the start of 2011 and weighted by market capitalization. From January 2011 through May 2018, the index was up by a staggering 550%, about 5 times the respective gains for the S&P 500 Index (SPX) and the Dow Jones Industrial Average (DJIA), and roughly 3 times the gain for the Nasdaq Composite Index. (For more, see also: 6 Cloud Stocks Poised for Rapid Growth.)
Wix.com serves small businesses and individuals with tools and templates that facilitate the design and management of websites. It also offers web hosting, support for blogs and social network pages, e-commerce and appointment applications, plus marketing tools such as Google Analytics and mailing list management. In short, the company attempts to offer one-stop-shopping for clients who require a full range of support services related to their online presence.
While increasing sales rapidly, the company has yet to turn a profit. The consensus estimate for the current fiscal quarter is EPS of 14 cents, which would be its first quarterly profit ever, per MarketWatch. The stock trades at a hefty forward P/E ratio of 87 times the consensus EPS estimate for fiscal 2019.
Zendesk provides a platform for customer support, customer service and IT help desk departments. It facilitates delivery of these support services through multiple media, including voice, messaging, chat, e-mail, and user forums, while also offering ticketing, tracking, security and analytics.
Zendesk also has not posted a profit so far, although the consensus estimate calls for EPS to be just barely positive in current quarter, at less than 1 cent. The forward P/E based on the 2019 consensus estimate is a stratospheric 187 times earnings.