Once again, growth stocks have outperformed value stocks led by the impressive Magnificent Seven. While these large-cap stocks are profit machines, they might not maintain revenue growth at current levels due to the laws of large numbers. In contrast, smaller emerging growth stocks can grow revenues at higher rates for several years or decades.
So why should you consider emerging growth stars? First, interest rates are falling, which is favorable. As rates fall, discount rates decline, increasing the values of these stocks. Also, if the Federal Reserve cuts rates in 2024 as the market expects, these stocks could surge higher.
Secondly, most emerging growth stocks are smaller companies with lower market capitalization. As a result, institutional ownership is lower. Moreover, they have limited coverage from Wall Street analysts and are under-covered gems. Therefore, if you get in early, you will ride the gains as institutional ownership grows.
Below are three emerging stocks to watch, posting incredible earnings. Their growth story is just beginning, and they will be huge winners in the future.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) has been on a tear lately and is up over 190% year-to-date. One would think the gains in one of the best emerging growth stocks are overdone. However, innovations are bringing in more users, resulting in surging revenues.
Through its flagship Duolingo App, it offers courses in more than 40 languages. Every day, millions of users flock to the platform to learn foreign languages. Today, the company has more than 75 million monthly active users (MAUs).
Learners on the platform love the bit-sized and fun-filled learning experience on Duolingo. Its mobile learning app has more than 500 million downloads globally. Duolingo is in a league of its own among educational apps, and it’s the top-grossing app on the App Store and Android’s Play Store.
Duolingo offers a freemium model where learners see an ad at the end of each session. Otherwise, learners can subscribe to the premium option, Super Duolingo. Subscribers are powering revenue as third quarter fiscal year 2023 results impressed with 43% growth. For the quarter, subscribers increased 60% year-over-year to 5.8 million.
More than 76% of Duolingo’s revenue came from subscription revenue. Additionally, other segments registered growth. Advertising and Duolingo English Test revenues grew 10% and 30% YOY, respectively.
In terms of forward growth, the company continues to innovate. In the third quarter release, management highlighted the innovations. “Last month, we announced an important strategic shift toward becoming a multi-subject product, with our Math and Music courses being added to the flagship Duolingo app,” said Luis von Ahn, CEO of Duolingo.
Moreover, the company’s marketing efforts are bearing fruit and Duolingo is going viral. For instance, their “Barbie” campaign generated more than 140 million organic social impressions. Learning a new language can profoundly impact one’s life. Duolingo is well-positioned to serve curious individuals.
Samsara (IOT)
Samsara (NYSE:IOT) is riding the demand for productivity in enterprises. The company uses Internet of Things technology to track company assets and workers. Then, it aggregates and enriches this data to provide insights companies can apply to drive efficiencies.
In the current environment, companies are looking to cut costs. Samsara has emerged as a reliable partner to achieve this goal. For instance, a company can use its technology to track its logistic networks. Using the insights generated, the company can generate insights on reducing costs. For example, what are the best routes to reduce fuel costs?
Samsara’s purpose-built applications are in high demand, and it won seven Fortune 1,000 customers in the third quarter. As a result, revenues and earnings are soaring. Indeed, Samsara is one of the handful of free cash flow generating companies that has achieved more than 40% year-over-year growth in the last four quarters. Moreover, in Q3 FY2023, the company surpassed $1 billion in annual recurring revenue.
Large enterprises love Samsara’s technology since it enables asset visibility and cost savings. For instance, in the third quarter shareholder letter, management highlighted they were helping one of the largest air carriers to save more than $15 million annually. Its technology is assisting the airline’s employees in tracking critical equipment in real-time.
Over the long term, Samsara is a play on the digitization of physical operations. The company projects a $55 billion TAM in connected fleet management and IoT. Large enterprises want to reduce costs and improve productivity. Samsara’s technology is a critical ingredient in achieving these objectives.
Celsius (CELH)
As the fastest-growing soft drinks and non-alcoholic beverages company, Celsius (NASDAQ:CELH) is one of the emerging stocks to watch. Quarter after quarter, the company has surprised Wall Street with strong revenue numbers. Revenues have grown at 89% annually over the past five years.
Today, Celsius is still on the emerging growth stocks list. Remarkably, revenue growth has topped 100% over the last two years. It grew 140% and 108% in 2021 and 2022, respectively. The energy drink company is keeping up with these impressive growth figures and analysts expect 100% revenue growth in FY2023.
Celsius has emerged as a lifestyle brand and is increasing in popularity even in Washington. Revenue is surging as it attracts new consumers and enters new markets. As this growth continues, it is leveraging its distribution agreement with Pepsi to enter new markets and earn more shelf space.
Analysts think it’s one of the best emerging growth stocks to buy. Their average price target of $70 presents more than 30% upside. Notably, they believe the company will achieve impressive revenue growth in the coming years.
Jeffries analyst Kaumil Gajrawala thinks Celsius can grow revenues at a 26% compounded annual growth rate from 2023-2027. Furthermore, he projects higher international revenues from expansion into Canada and Europe.
In the recent Nielsen readout, Celsius grew sales 149% year-over-year. Comparing the growth rates against peers, it’s taking market share. With its share in energy drinks under 10%, Celsius has a long growth runway.
On the date of publication, Charles Munyi had a long position in CELH and did not hold (either directly or indirectly) any positions in other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.