Constructing a portfolio takes a lot of time and effort. It’s even more tedious to craft a portfolio that aligns with your financial goals.
Some investors seek to grow their portfolios by as much as possible. They are willing to take risks but don’t want to take on speculative investments. Distinguishing between those types of assets can help investors realize higher returns in the long run.
Direct Digital Holdings (DRCT)
Direct Digital Holdings (NASDAQ:DRCT) looks like a hidden gem due to its low market cap and rapid growth. The advertising company has a $140 million market cap and a 32 P/E ratio. The firm is valued at a 14-forward P/E ratio.
Direct Digital Holdings specializes in programmatic advertising. The company offers solutions to the buy and sell side of the digital advertising industry. However, the sell side is where most of the growth resides. The firm has many clients in multiple industries and places an emphasis on small and medium-sized businesses generating $5 million to $500 million in revenue.
Revenue and earnings growth have soared in recent quarters which makes this micro-cap stock look enticing. Revenue surged by 129% year-over-year in the third quarter of 2023. Net income outpaced revenue growth with a 313% year-over-year increase.
The company offered guidance ranging from $170 million to $190 million in fiscal year 2023 revenue. The midpoint represents a 101% year-over-year revenue increase. Sell-side advertising drives this growth with 174% year-over-year revenue growth. The buy-side advertising segment only grew by 10% year-over-year. A low valuation combined with hyper-growth makes DRCT enticing.
Semrush (NYSE:SEMR) is an SEO software that helps businesses discover optimal keywords and various opportunities to rank higher on search engines.
Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google and other search engines can drive considerable traffic to a company’s website. Some corporations pay millions of dollars each year to ensure their content gets in front of more people.
Semrush is a convenient tool with a monthly subscription plan. This revenue model has helped the company achieve $322.8 million in annual recurring revenue.
The company’s growing subscription business resulted in a 20% year-over-year growth in revenue. GAAP net income reached $4.2 million which is significant progress for a company that had been unprofitable for a while.
Profit margins are likely to expand in the upcoming quarters. Higher profit margins will result in a lower valuation and give the stock more room to run. Shares have gained 47% over the past year. Shares are still more than 60% down from their all-time high, but the stock can reclaim that level in a few years.
Wingstop (NASDAQ:WING) is a rising fast food restaurant stock that has gained 318% over the past five years. The fast food chain started in Texas back in 1994 and now has almost 2,000 global locations.
The company has a long record of growth. Wingstop has 19 consecutive years of same-store sales growth and is likely to reach 20+ consecutive years. Domestic sale store sales increased by 15.3% year-over-year to support 26.4% year-over-year overall revenue growth.
That wasn’t the only great news surrounding the fiscal third quarter of 2023. Digital sales have been a big growth driver and surged by 66.9% year-over-year. Net income also jumped by 46% year-over-year which means the net profit margin is expanding.
Leadership has a long-term vision of scaling Wingstop into a Top 10 Global Restaurant Brand. The firm closed out the third quarter with 53 new net openings which will introduce more customers to the brand.
Duolingo (NASDAQ:DUOL) is a high-growth educational app that helps people master new languages and various school subjects. New users are flocking to the app based on the company’s 63% year-over-year growth in daily active users in the third quarter of 2023.
The strong user base also resulted in 43% year-over-year revenue growth and raised its full-year guidance. Luis von Ahn, co-founder and CEO of Duolingo, expressed optimism about offering new subjects outside of language learning.
Duolingo was downgraded recently due to the threat of artificial intelligence. However, this fear is overblown. Artificial intelligence is a complementary resource rather than an uprooter.
Speculators believed artificial intelligence would replace writers last year, but many publications are pulling back or banning the use of AI tools. Similarly, there has been speculation about autonomous trucks replacing drivers, but this seems increasingly unlikely.
Investors shouldn’t be worried about artificial intelligence hurting Duolingo’s business model. The firm recently became profitable and is growing at a nice pace. Pressure from the downgrade presents a buying opportunity.
Alphabet (GOOG, GOOGL)
Alphabet has been a consistent winner over many years. Shares are up by 46% over the past year and have gained 171% over the past five years.
Advertising is the company’s main revenue stream. Revenue in this segment has picked up in recent quarters, and lower interest rates can signal higher ad revenue in the future. The firm’s cost-cutting measures can result in more profits combined with heightened revenue growth.
Alphabet is continuing its layoff saga which included its Moonshot division. This segment is focused on innovative ideas that can become viable business models but burn cash at the moment. Alphabet is turning to outside investors to fund its ventures.
Alphabet also has its Google Cloud business segment which recently became profitable and continues to deliver exceptional growth. Google Cloud achieved 22,5% year-over-year revenue growth while the business as a whole grew revenue by 11% year-over-year. Alphabet can continue to march higher despite having a market cap above $1 trillion.
Nvidia (NASDAQ:NVDA) is another trillion-dollar company that looks ready to generate more returns for investors. The AI leader is off to a strong start with a 24% year-to-date gain. Shares have gained 211% over the past year and are up by 1,390% over the past five years.
The scorching demand for artificial intelligence helped Nvidia increase revenue by 206% year-over-year. Net income increased by more than 1,200% in the third quarter of fiscal 2024. These growth rates have helped Nvidia maintain a reasonable valuation.
While Nvidia has been thrown into the spotlight due to artificial intelligence, the tech conglomerate has multiple high-growth business segments. Its gaming segment increased revenue by 81% year-over-year. Revenue from the professional visualization segment is up by 108% year-over-year. Both segments also achieved double-digit sequential growth.
While professional visualization represents a small but growing portion of Nvidia’s revenue, the gaming segment brings in more than 15% of the corporation’s total revenue. Nvidia isn’t only an artificial intelligence play, but that vertical has allowed the company to experience record-breaking growth.
Palo Alto Networks (PANW)
Palo Alto Networks (NASDAQ:PANW) is a leading cybersecurity company that is significantly ramping up its net profit margins. The corporation’s net income surged from $20.0 million to $194.2 million year-over-year in the fiscal first quarter of 2024. That translates into an 871% year-over-year growth rate.
Revenue held strong with 20% year-over-year growth while remaining performance obligations jumped by 26% year-over-year.
Cyber attacks are on the rise, and more businesses are turning to companies like Palo Alto Networks for help. Many investors see the opportunity and bid up PANW 394% higher over the past five years. Shares are up by 131% over the past year.
Palo Alto Networks’ valuation will become more reasonable as the company reports high year-over-year net income growth. This net income expansion is a big payoff for long-term investors.
Dipak Golechha, Chief Financial Officer of Palo Alto Networks, cited a high cost of money impacting the company’s billings. Lower interest rates should act as a tailwind for the company’s billings and lead to a higher share price.
On this date of publication, Marc Guberti held long positions in DRCT, DUOL, and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.