Identifying the next set of growth stocks to buy can be a game-changer for Wall Street portfolios. Investors who buy a growth stock expect the company to grow its revenues and earnings significantly faster than an average industry peer or the overall market. For instance, the Vanguard Growth Index Fund ETF Shares (NYSEARCA:VUG) fund has returned over 38% since January. By comparison, the S&P 500 index has advanced shy of 29%.
We should note that investing in growth stocks isn’t without risks. These companies usually have valuations that can seem stretched by traditional metrics. They’re also more vulnerable to market volatility and economic downturns than their more established counterparts. Some of them are young companies with unproven products or services.
However, growth shares can be a potent tool for investors willing to take on a bit more risk in pursuit of outsized returns. With that information, here are three growth stocks to watch in June.
Nutanix (NTNX)
First up on our list of growth stocks to buy is Nutanix (NASDAQ:NTNX). The company sells data center software that merges virtualization, storage and networking into a single integrated solution. Nutanix’s innovative software solutions are well-positioned to capture significant market share as they help businesses simplify their data center operations.
Second quarter fiscal 2024 metrics for Nutanix surpassed analyst estimates with strong revenue and billing growth and margin expansion. Revenues grew 16% year-over-year (YOY) to $565 million. The company posted an adjusted earnings per share (EPS) of $0.46, up from $0.12 in the prior-year quarter. Meanwhile, free cash flow skyrocketed 158% to $163 million.
Investors have been following the news that Nutanix has signed AI-related deals with Cisco (NASDAQ:CSCO), Hugging Face and others. Understandably, these deals could cause strong tailwinds in Nutanix’s pipeline. Annual contract value billings jumped 23% YOY to $330 million, driven by strong renewal performance that illustrates the stickiness of Nutanix’s offerings.
Year-to-date, NTNX stock has gained 52%. As a result, Nutanix shares command a premium valuation at 67.6 times adjusted forward earnings and 8.6 times trailing sales. Therefore, interested readers may wait for a pullback below the $70 level.
Sensata Technologies (ST)
Industrial technology company Sensata Technologies (NYSE:ST) is the next name among our growth stocks for today. Sensata specializes in sensors and sensor-rich solutions. These critical components are vital in the automotive, aerospace, energy, agriculture and construction industries.
In the first quarter of 2024, Sensata Technologies reported revenue of over $1.006 billion, marking a 1% increase YOY. Adjusted EPS was $0.89, down $0.03 from the first quarter of 2023 but $0.01 above guidance.
Meanwhile, management highlighted the company’s strategic focus on electrification, which has shown impressive growth and positions the company well for future opportunities in the electric vehicle (EV) market. However, the mixed performance across different business segments and challenges posed by industrial destocking are important considerations for investors.
Year-to-date (YTD), ST stock is up 11% with a dividend yield of 1.2%. Meanwhile, the shares potentially offer fundamental value at 11.3 times future earnings and 1.5 times sales. Despite the recent gains in ST stock, the 12-month median price forecast is $47. Such an advance in Sensata shares would suggest an upside potential of 12% from current price levels.
ServiceNow (NOW)
We conclude our discussion of growth stocks with cloud-based solutions provider ServiceNow (NYSE:NOW). The company’s innovative workflow platform employs AI to streamline enterprise workflows and enhance enterprise productivity.
ServiceNow exceeded guidance across all topline growth and profitability metrics in its first quarter earnings. The company reported revenue of $2.6 billion, marking a 24% YOY increase. Adjusted EPS surged 44% YOY to $3.41.
Generative AI has helped ServiceNow enhance its existing product offerings and increase its addressable use cases. The company boasts an almost perfect renewal rate and an impressive track record of upselling and cross-selling its customers. In the first quarter, subscription revenue grew 25% YOY to $2.5 billion, with generative AI solutions playing a key role in securing deals with other companies.
The global market for workflow automation is expected to grow at a compound annual growth rate (CAGR) of 16.6% from 2022 to 2030. Management sees yearly subscription revenue growth of at least 20% through 2026, exceeding $15 billion by 2026. Additionally, analysts are forecasting incremental margin improvements in the coming quarters as operational leverage continues to reduce costs.
Year-to-date, NOW stock has advanced 11%. Shares are valued at a premium with a forward P/E ratio of 55.6 and a trailing sales ratio of 16.4. Finally, Wall Street’s 12-month price target implies an upside potential of 10%.
On the date of publication, Tezcan Gecgil did not have (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.