Two growth stocks worth buying ahead of surges of 72% and 79%, Wall Street analysts say

All three major U.S. market indexes have moved higher over the past year. Dow Jones Industrial Average 14% advanced, S&P 500 Index 22%, and Nasdaq Index Soared 32%.But some Wall Street analysts still see room for upside PayPal Holdings (NASDAQ: PYPL) and sales force (NYSE: CRM).

Brett Horn is at Morningstar Corporation PayPal has set a price target of $104 per share, implying an upside potential of 79%.Likewise, Keith Weiss in Morgan Stanley Salesforce sets a bullish price target of $481 per share on Salesforce, implying an upside potential of 72%.

Here’s what investors should know about these stocks.

1. PayPal Holdings

PayPal delivered solid results in the fourth quarter. Revenue grew 9% to $8 billion, driven by strong growth in total payment volume. Non-GAAP Net profit jumped 18% to $1.6 billion due to effective expense control and share buybacks. The numbers beat expectations, but the guidance was disappointing. Management said non-GAAP earnings will be flat in 2024, despite the company’s focus on operating efficiencies, including plans to cut 9% of its workforce. reduce.

Wall Street expected non-GAAP earnings to grow 7%. But the guidance fell short of expectations because payment volume for non-branded checkout products such as Braintree grew much faster than payment volume for branded checkout products. Non-branded checkout has lower margins, which management believes will offset revenue growth this year.

On the bright side, PayPal has redesigned its branded checkout experience to increase speed and reduce friction. These changes are likely to accelerate future growth in brand payment volumes, but the guidance only includes the minimal contribution of new innovations as they take time to scale. In this case, there’s still upside to the outlook in 2024 if new brand checkouts expand faster than expected.

Ultimately, the investment thesis hasn’t changed and remains compelling. PayPal dominates online payment processing, with a market share nearly twice that of its next-largest competitor.This means revenue growth should at least match retail growth e-commerce If the company can maintain its market share, sales will grow in the coming years. However, PayPal is also working to drive adoption of Venmo debit cards, which could help it gain share in brick-and-mortar retail.

With that in mind, Morningstar’s Brett Horn expects PayPal’s sales to grow at an annual rate of 8% over the next decade. This prediction seems reasonable given that retail e-commerce sales are expected to grow at an annual rate of 8% through 2032. With that in mind, the current valuation of 2.2x sales looks cheap. In fact, the stock trades at close to the cheapest price-to-sales multiple in history. While I doubt shareholders will be able to achieve a 79% return over the next 12 months, owning a small number of shares over a 5-year time horizon should be considered.

2. Sales staff

Salesforce reported better-than-expected profits for the third quarter of fiscal 2024 (ended October 31). Revenue grew 11% to $8.7 billion as data analysis and integration tools grew particularly strongly, followed by customer service and sales software. The bottom line is that non-GAAP net income surged 48% to $2 billion as the company continued to focus on profitability. Salesforce is well-positioned to keep this momentum going.

The investment thesis is simple. Salesforce is synonymous with customer relationship management (CRM) software. As of the first half of last year, the company accounted for 22.1% of CRM spending, more than its next four competitors combined. Its market is so strong that research firm G2 named Salesforce the best software seller in all categories in 2024.

Salesforce is also innovating in artificial intelligence (AI). Its CRM platform includes productivity applications for marketing, sales, customer service and commerce, and its Einstein Copilot brings artificial intelligence capabilities to these tools. For example, Einstein Copilot allows users to generate marketing content, uncover sales insights, craft personalized customer service responses, and customize online storefronts using natural language prompts.

Morgan Stanley’s bull price target is $481 per share, based on a discounted cash flow model that assumes annual sales growth of 16% through fiscal 2028 (ending January 31, 2028). Given that CRM spending is expected to grow 14% annually through 2030, investors should temper their expectations.

Revenue grew 11% in the most recent quarter, and it’s likely to follow a similar trajectory in the coming years. This estimate makes the current valuation of 8.3x sales look fair, albeit at a slight premium to the three-year average of 7.5x sales. The share price is unlikely to rise 72% over the next 12 months, but investors with a five-year investment horizon should consider taking a small position in the stock today.

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Trevor Janewin The Motley Fool has a position in PayPal. The Motley Fool holds positions in and recommends PayPal and Salesforce. The Motley Fool recommends the following options: Short $67.50 calls on PayPal in March 2024. Motley Fool has disclosure policy.

Two growth stocks worth buying ahead of surges of 72% and 79%, Wall Street analysts say Originally published by The Motley Fool

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