After seeing the stock more than double in 2023, it’s understandable that some investors think they’ve missed the boat. Shopify (NYSE: SHOP). Of course, the outlook is bright for the software-as-a-service specialist as it enjoys lower costs and skyrocketing sales growth. Yet much of that enthusiasm is reflected in Shopify’s high valuation.
There are other good options for growth stock investors to consider if Shopify’s large premium deters them. Amazon (NASDAQ:AMZN) And Okta (NASDAQ:OKTA) the stocks could be even better buys for 2024 and beyond.
Amazon has the goods
E-commerce sales have finally started growing again after steep declines following the pandemic, but that’s not the only factor driving Amazon shares higher these days. Wall Street is salivating over strong sales gains in the tech giant’s cloud services segment, home to giant Amazon Web Services (AWS). This unit represents well over half of Amazon’s business and will likely grow in importance over the coming decades.
Growth in the product and service divisions contributed to Amazon’s latest sales increase of 13% for the third quarter. Wall Street pros predict a similar rebound for the holiday quarter, as revenue improves to $129 billion from $114 billion a year ago.
Amazon also generates much higher profits on this growing sales base. For example, cost reductions in recent quarters have allowed cash flow to become very positive. Amazon generated $21 billion in free cash flow over the past year, compared to an outflow of nearly $30 billion a year earlier.
This success should give investors confidence that rising profit margins are on the way, which will likely help the stock continue to beat the market in 2024 and beyond. The shares are also not valued at a huge premium. You can own Amazon stock for less than 3 times sales compared to Shopify’s price-to-sales (P/S) ratio of 15.
Okta is a digital winner
Another potential steal of a growth stock is Okta, priced at less than 7x sales at the end of 2023. The digital identity and cybersecurity specialist is growing sales at a rate of over 20% all year round. taking big steps towards sustainable profitability. Companies have prioritized these spending niches in 2022 and 2023, even as they have pulled back in other IT areas, highlighting the recession-resistant nature of the cybersecurity sector.
Okta isn’t profitable today, but two important signals suggest positive earnings are on the way. The first is free cash flow, which is expected to reach about 20% of sales in 2023. Executives expect this non-GAAP Profit margin (adjusted) will also improve to 17% of sales next year, compared to the 13% rate expected for fiscal 2023. For context, Okta reported a 1% loss by this measure during the 2022 financial year.
Right now, the biggest hurdle for the stock is that sales growth is expected to slow significantly in the coming year, while Shopify has a clearer path to maintaining an expansion rate above 20 %. Still, the stock’s lower valuation could allow patient investors to earn solid returns as Okta continues to gain market share in its industry. software as a service industrial niche.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Demitri Kalogeropoulos holds positions at Amazon, Okta and Shopify. The Motley Fool holds positions and recommends Amazon, Okta, and Shopify. The Mad Motley has a disclosure policy.
Ignore Shopify: Here are 2 Growth Stocks to Buy for 2024 was originally published by The Motley Fool