One strategy for finding wealth-building investments is to search for companies that are growing their revenue at high rates. That might seem overly simplistic, but there's a strong correlation between a company's revenue growth and stock performance over many years. Top-line growth says a lot about the value of its product and its future market opportunity.
Two examples of such companies are Monday.com(MNDY 7.18%) and Global-E Online (GLBE 6.12%). These are fast-growing, mid-cap stocks serving large markets, and they could be very rewarding investments.
NASDAQ: MNDY
Key Data Points
1. Monday.com
Monday.com offers a cloud-based platform called WorkOS that helps companies design custom apps for specific tasks. Teams can import external data and collaborate with others all from within a centralized workflow app on Monday's platform.
The market for task management software is exploding. Monday.com's revenue grew from $78 million in 2019 to $519 million in 2022. Management is guiding for 37% to 38% growth in 2023, though that's down from 68% in 2022.
The stock has fallen well off its highs over this slowing rate of growth. Some investors are also worried about competition, since Monday is operating in a crowded field of vendors for this type of software. However, the company's decelerating top line reflects the weakening macro environment, which is impacting a broad swath of industries.
With the business climate starting to improve, the stock has rebounded 30% this year. In the second-quarter earnings report, management noted the exciting opportunities ahead with the new artificial intelligence-based assistant it just launched. The company has several new features it is starting to roll out that could drive more sales momentum over the next year.
As revenue growth stabilizes, Monday.com should also become profitable, which is another catalyst. It already expects to turn 2022's adjusted operating loss of $47.1 million into a profit of $24 million to $28 million this year.
The stock isn't cheap, but its price-to-sales (P/S) ratio of 12 is what you would expect to pay for a fast-growing software business with a huge growth runway ahead of it.
NASDAQ: GLBE
Key Data Points
2. Global-E Online
Cross-border e-commerce was estimated at $785 billion in 2021, according to Statista. It's growing twice as fast as domestic commerce, and Global-E Online's record of robust expansion shows it's well positioned to take advantage of this long-term opportunity.
More traffic for online stores is coming from international customers, but to win their business, Global-E provides merchants the tools to deliver a localized shopping experience. It displays currencies, languages, and payment options tailored to each customer, no matter where they live. Global-E also makes international selling a breeze by handling customs processing and more.
Global-E's revenue, which is earned as a percentage of the transaction value flowing through its platform, has increased from just $39 million in 2018 to $496 million through the second quarter of 2023 on a trailing-12-month basis.
The stock is trading 55% off its previous high, as unprofitable growth stocks fell out of favor last year. However, the company's losses are starting to narrow, which is why the stock looks particularly attractive right now. In the second quarter, it reported a loss of $36 million, improving from $49 million in the year-ago quarter.
Based on strong momentum through the first half of the year, management raised its full-year outlook for revenue and adjusted operating profit. Further improvement will serve as a catalyst for the stock in the near term.
Global-E is up 77% this year, and it also commands a premium valuation with a P/S ratio of 12. Long-term investors will want to hold this stock patiently to allow Global-E to capture more of its large market opportunity in cross-border e-commerce.
For investors interested in Monday.com and Global-E, starting with a small position and gradually adding to it over time as their performance warrants is the best way to go.
