Disruptive companies often deliver the largest investment returns as they transform industries and grow into giants. Of course, for every Alphabet, Meta Platforms, and Amazon, there are hundreds of promising businesses that flame out. Investors with high risk tolerance need to consider market opportunity and competitive advantages when choosing where to put their money. These three disruptors all offer compelling long-term investment cases.
1. Alteryx
Alteryx (AYX +0.00%) offers an analytics automation platform. The software enhances efficiency and capabilities across functions such as data science, analytics, machine learning, and reporting. Data is playing an increasingly important role in operations for businesses across the full spectrum of sizes and industries, but it's not always cost-effective to build an analytics team. Alteryx intends to fill that role, and it's already attracted more than 8,000 customers.
Alteryx delivered 26% revenue growth last quarter despite dealing with macroeconomic headwinds. Importantly, it also achieved 121% dollar-based net expansion rate, which looks at how much more existing customers are spending and is a strong indicator of product quality and customer satisfaction. This illustrates that the company is retaining a large percentage of subscribers and significantly expanding relationships with them.
NYSE: AYX
Key Data Points
Alteryx produced more than $30 million in free cash flow last quarter, despite reporting a loss from operations. The company announced that it was cutting more than 10% of its workforce in April as part of expense-reduction measures. It is forecasting positive adjusted earnings for the full year, reflecting the impact of non-cash expenses and other one-time items. Having just issued $440 million in debt last quarter, the company now has nearly $600 million in cash on the balance sheet. This should provide plenty of runway to continue growing, even through a lean period.
Alteryx's adjusted forward price-to-earnings ratio is around 55, given the company's full-year non-GAAP (adjusted) EPS forecast. That's fairly expensive relative to the full-year revenue growth forecast and it's going to take time for Alteryx to "grow into" its valuation, which is likely to result in relatively high volatility for the next few years. That still leaves significant long-term upside potential for this disruptive company, but investors should be aware of the risks in the meantime.
2. CRISPR Therapeutics
CRISPR Therapeutics (CRSP +4.60%) is a biotechnology company that aims to develop genetic therapies for diseases. The company has partnered with Vertex Pharmaceuticals on its exa-cel product, which is currently the nearest candidate of its kind to FDA approval. Exa-cel has delivered promising results over three years of clinical trials, in which it has shown efficacy in the treatment of blood diseases beta-thalassemia and sickle cell disease. Last month, Vertex and CRISPR Therapeutics announced the completion of the biologics license application submission for exa-cel, so it could be CRISPR's first product on the market relatively soon.
NASDAQ: CRSP
Key Data Points
Exa-cel would eliminate the need for a lifetime of costly blood transfusions for patients, so therapy would be cost-effective at a price point of nearly $1.9 million. Per the agreement with Vertex, CRISPR would receive 40% of profits from the partnership, which could be a serious cash flow opportunity for a company of this size. First-to-market status would theoretically provide competitive advantages in terms of development and regulatory matters. This would help to expedite the timeline of other therapies in its pipeline, which include several cancer treatments.
It's difficult to assess CRISPR Therapeutics' valuation right now since it doesn't currently have a product on the market. However, the long-term opportunity is very exciting. The gene-editing market is expected to approach $15 billion by the end of the decade, and it's likely to be one of the fastest-growing industries of the healthcare sector if patient outcomes continue to impress. Other competitors are sure to follow close behind, but CRISPR Therapeutics is looking to secure a massive foothold in a rapidly expanding market. With a market cap below $5 billion, it's conceivable that this stock could deliver huge returns if it's successful in this emerging industry.
3. Microsoft
If you're looking for a less speculative investment in a disruptor, Microsoft (MSFT 1.33%) is a compelling option. Microsoft is a mature incumbent in several major markets, including cloud computing, gaming, productivity software, and computer operating systems. However, rather than simply resting on its laurels, the tech giant continues to make moves that could solidify its leadership position in the next generation of technological advancements.
NASDAQ: MSFT
Key Data Points
Microsoft has become as one of the leaders in the emerging artificial intelligence (AI) industry. The company invested in OpenAI, and the two teams collaborated to incorporate AI in its Office and Bing products. Detractors are quick to point out that generative media isn't quite as revolutionary as a truly self-aware machine, suggesting that the technology is getting overhyped in financial media and pop culture. That might be the case, but the rapid enhancements to AI suggest that a transformative step in productivity software is beginning.
Microsoft's forward P/E ratio of 29 and its 0.8% dividend yield suggests that this isn't a typical growth stock. It's much larger and more mature than a typical disruptor and it's more appropriate for investors who want some dynamic upside without taking on the risk associated with many early-stage growth stocks.
