Picking growth stocks requires a new approach in this environment. Over the past decade, interest rates were near zero and even negative in Europe. However, there has been a drastic change due to higher inflation and the era of easy money is over. Analysts at RBC Wealth Management expect interest rates to remain elevated for a prolonged period.
In such an interest rate backdrop, not all growth stocks will work. While investors previously rewarded unprofitable growth stocks with significant shareholder dilution, the tide has shifted. Today, investors demand earnings growth and free cash flow profitability even from the best revenue growth stocks.
Below, we highlight the best growth stocks delivering revenue and earnings growth. According to Finviz, the following growth stocks will achieve over 30% annual EPS growth over the next five years.
CrowdStrike (NASDAQ:CRWD) is at the heart of two secular trends for the next decade. First, it’s a cloud play since it’s a cloud-native cybersecurity company. Secondly, it is an emerging force in the rapidly evolving and growing cyber threat landscape.
The company has earned the right to be named one of the best growth stocks. The numbers don’t lie! It has delivered a compounded annual revenue growth rate of 68% over the past five years. Today, the growth story is still intact. For fiscal year 2024, ending Jan. 31, 2023, management expects $3 billion in revenues, a 36% growth.
On the profitability front, the company is executing flawlessly. It is GAAP profitable and expects to deliver $715.2 – $717.7 million of non-GAAP net income in FY2024. Moreover, the company expects to hit 30% free cash flow margins for the year.
Going forward, the fundamental outlook for Crowdstrike is exciting. According to Gartner, security spending will increase 14.3% in 2024, with cloud security rising 24.7%. Cybersecurity budgets are growing due to the Security Exchange Commission’s disclosure rules and the rise of high-profile ransom attacks.
Investors have recognized that Crowdstrike benefits from cloud spending and bolsters demand for cloud security products. In 2023, CRWD stock was up 134%. Expect more upside from the growing cloud security total addressable market.
Take-Two Interactive Software (TTWO)
This gaming giant has always captured the attention of fans through its groundbreaking titles. Take-Two Interactive Software (NASDAQ:TTWO) is famous for games like Red Dead Redemption and Grand Theft Auto.
In December 2023, the company created a frenzy after releasing the upcoming Grand Theft Auto VI trailer. Remarkably, in a day, the video had surpassed 80 million views on YouTube, highlighting the huge interest from fans. Indeed, the release will likely start another growth cycle for this gaming giant.
TD Cowen analysts Doug Creutz and Mei Lun Quach are bullish on the upcoming release in early 2025. They estimate the game will sell over 40 million units within the first year of release. Furthermore, they note that the company is a top-tier operator supported by its intellectual property, talent and high-quality management.
Considering the success of prior titles, the new release makes Take-Two Interactive one of the best growth stocks. Grand Theft Auto V is one of the bestselling video games since its release in 2013. At the end of Q2 FY2024, it had sold over 190 million units. The game has earned Take-Two billions in revenue, likely to be replicated by the upcoming release that has garnered higher interest.
The company also has a solid lineup of other releases coming in 2024. These include Penny’s Big Breakaway, Star Wars Hunters and Game of Thrones: Legends. With a robust pipeline, management expects FY2024 net bookings to be between $5.45 and $5.55 billion. According to management, groundbreaking titles like NBA 2K and Grand Theft Auto will set the foundation for multi-year growth.
This medical device company specializes in continuous glucose monitoring (CGM) systems. Over the past five years, DexCom (NASDAQ:DXCM) has been one of the best growth stocks. It has grown revenues at a 30% CAGR. However, it underperformed the S&P 500 in 2023 due to GLP-1 fears around medical device companies.
But looking at financial results, the company continues to deliver solid earnings. Undoubtedly, the stock is a bargain at current levels. It’s one of the best growth stocks to buy before investors appreciate the strength of its glucose-monitoring products.
DexCom’s CGM systems are critical in diabetes care. Management has noted clinicians prefer using CGMs alongside GLP-1 drugs to achieve the best patient outcomes. Notably, CGM prescription trends grow on GLP-1 therapy initiation due to their protective features.
It’s evident that CGMs are complementary and will not be made obsolete by GLP-1s. Thus, DexCom will keep up its growth trajectory. Revenues have grown over 25% YOY in the past two quarters, highlighting solid demand. Amid GLP-1 uncertainty, the U.S. business is accelerating due to the new G7 CGM system and increased coverage.
As Q3 2023 results showed, profits are also soaring, with adjusted EBITDA of $314.5 million. This represented a quarterly record 32.3% margin compared to 29.4% in the previous year. GAAP operating income also grew 39% year-over-year from $147.5 million in 2022 to $205.5 million.
Looking at 2024, management released their initial 2024 outlook, projecting 16% to 21% organic growth. They expect a non-GAAP operating margin of approximately 20%, highlighting solid profitability. With an expanding addressable market and new products set to launch, DexCom’s earnings momentum will continue in 2024.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.