The Nasdaq Compound has risen more than 11% over the past month, but the tech-heavy index is still in bearish territory, trading 21% below its all-time high. This slowdown was triggered by high inflation and rising interest rates, and growth-oriented portfolios were particularly hard hit. But there is a bit of good news mixed in with the bad.
Over the past year, many high-calibre companies have seen their stock prices plunge simply because some investors have lost their appetite for growth stocks in the current macro environment. And that creates a buying opportunity for patient stock pickers.
As investors calculate their best path through this bear market, here are two Nasdaq-100 growth stocks that they might consider buying now and holding forever.
1. Zscaler: Protect critical business infrastructure and applications
Z-scale (ZS -2.82%) specializes in network security. Its zero-trust platform is fundamentally different from traditional on-premises solutions. Rather than routing all traffic through a corporate data center, Zscaler relies on artificial intelligence to inspect traffic and enforce security policies in the cloud. In this regard, Zscaler is a gateway that enables fast and secure connectivity to corporate resources from any device or location. But its portfolio also includes tools for cloud workload protection and digital experience monitoring.
Zscaler’s platform – known as the Secure Access Service Edge (SASE) – runs on 150 global data centers and captures 300 trillion security signals every day, making it the largest cloud in security in the world. This advantage allows Zscaler to provide more effective network security than any competitor. To this end, the research company Gartner has recognized Zscaler as an industry leader for 11 consecutive years.
Financially, the company is running at full speed. Revenue soared 61% to $970 million in the past year, and free cash flow (FCF) soared 45% to $184 million. To add, the remaining performance obligation (RPO) increased 83% to $2.2 billion. This bodes well for the business as RPO is a leading indicator of future sales.
Looking ahead, management estimates its market opportunity at $72 billion, and Gartner estimates that 60% of enterprises will intend to adopt SASE solutions by 2025, up from 10% in 2020. This tailwind should keep Zscaler in growth mode for years to come. And although the stock is still trading at a high price of 23.6 times sales, this multiple is significantly lower than the three-year average of 37.4 times sales, which is now a good time to buy some shares.
2. Adobe: Boosting creativity and personalized digital experiences
Adobe (ADBE -1.79%) is one of the world’s most diverse software companies, with solutions spanning digital media to digital experience. In the first segment, Adobe offers a number of creativity apps, many of which are market-leading products. This includes Photoshop for image editing, Premiere Pro for video editing, and After Effects for motion graphics and visual effects.
The digital media segment also includes software like Adobe Sign for electronic signatures and Adobe Acrobat for digital documents, which improve brand efficiency by eliminating paper-based workflows. In 2021, International Data Corp. acknowledged Adobe (alongside DocuSign) as the market leader in electronic signature software.
Through its digital experience segment, Adobe offers a complementary suite of applications for analytics, marketing, and commerce. Its software enables brands to capture, understand and use data to target content and personalize the customer experience across digital channels. Gartner recognized Adobe as a leader in digital experience earlier this year.
Financially, Adobe is growing steadily with strong results in both business segments. Over the past year, total revenue increased 16% to $16.7 billion and FCF increased 4% to $6.9 billion, equivalent to a margin Impressive FCF of 41%. But investors have good reason to believe that this momentum will continue.
Management estimates its potential market at $205 billion by 2024 and the company has defined a solid growth strategy. Among other initiatives, Adobe is working to improve collaboration through web-based versions of Photoshop and Illustrator, which allow creators to simultaneously view and edit the same content. Adobe has also positioned itself as a key player in the metaverse with immersive content tools like Substance for designing and modeling 3D scenes and Aero for creating augmented reality experiences.
Currently, shares are trading at 12.4 times sales, a discount to the five-year average of 15.3 times sales. That’s why now seems like a good time to buy this growth stock.
Trevor Jennewine holds positions at Adobe Inc., DocuSign and Zscaler. The Motley Fool holds posts and recommends Adobe Inc., DocuSign, and Zscaler. The Motley Fool recommends Gartner and recommends the following options: $420 January 2024 Long Calls on Adobe Inc., $60 January 2024 Long Calls on DocuSign, and $430 January 2024 Short Calls on Adobe Inc. The Motley Fool has a disclosure policy.