In this market environment, following the buy-and-hold investment strategy may feel like a bad bet -- particularly in the tech sector. Many prominent growth tech stocks have dropped in value by more than 75% over the last year, and the Ark Innovation ETF, which has a significant portion of its assets in emerging tech stocks, has lost two-thirds of its value since last June.
But short-term issues aside, the buy-and-hold approach has served investors in many leading tech stocks well over periods of 10 years or more. And three of our contributors believe that new investors in Salesforce (NYSE: CRM), Crowdstrike Holdings (NASDAQ: CRWD), and Zoom Video Communications (NASDAQ: ZM) could benefit from this strategy.
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A business powerhouse selling at a discount
Jake Lerch (Salesforce): Holding stocks for a decade or more is a great way to build wealth. And when picking investments you intend to own for the long term, it's best to focus on businesses with strong histories of execution and strong prospects for the future. Salesforce is just such a company.
It is one of the global leaders in cloud-based customer relationship management (CRM) software. Its products help businesses develop leads, share data, and close deals. Salesforce boasts over 150,000 customers who rely on its applications to become more efficient, integrated, and profitable.
Salesforce generated $28 billion in revenue and $19.5 billion in gross profit over the last 12 months. And the top line continues to soar. In its fiscal 2023 first quarter, revenue rose 24% year over year, impressive for a company with a market cap of $156 billion. In addition, Salesforce has more than tripled its annual free cash flow over the last five years to $5.72 billion.
Yet in the last 12 months, its stock price has experienced serious turbulence. Shares are down 40% from last year's all-time high. And even after a recent mild rally, Salesforce's price-to-sales ratio is about 6.5 -- near its all-time low.
CRM PS Ratio data by YCharts
Analysts expect Salesforce to generate revenues of $31.8 billion in its fiscal 2023 and $37.5 billion in its fiscal 2024. Wall Street also expects earnings per share of $4.75 this year and $5.82 next year.
It all adds up to a company on a roll. Salesforce continues to grow at a robust clip, generating plenty of free cash flow. Moreover, the recent market sell-off gives investors a chance to buy the stock at a historically cheap valuation. In my view, that makes it a no-brainer stock to buy and hold for the next decade or more.
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A new generation of cybersecurity
Justin Pope: (CrowdStrike Holdings): Cybersecurity is quickly becoming a higher priority for companies as they become increasingly dependent on data and digital systems. According to research by IBM, the average corporate data breach in 2021 cost its victim $4.2 million. According to Cybersecurity Ventures, global cybersecurity spending could grow from 2021's $262 billion to $459 billion by 2025.
CrowdStrike offers investors exposure to this growth. Its proprietary cloud-based Falcon platform acts as a network, connecting all devices it protects. The more devices that are connected to the platform, the faster it learns. And a threat detected in Denver will teach the Falcon platform's artificial intelligence how to protect a device in San Jose from the same threat in real time. No more waiting for the software publisher to issue an antivirus update while your devices and systems remain vulnerable.
Companies of all sizes are buying into CrowdStrike's technology. Its customer count was 17,945 as of April 30, and that figure includes 65 of the Fortune 100 and 254 of the Fortune 500. Its software-as-a-service (SaaS) model generated $1.9 billion in annual recurring revenue as of April 30, a 61% increase over the prior year. Rapid growth isn't costing CrowdStrike profits, either. It turned free cash flow positive in 2020 and is already converting 32% of its revenue into cash.
CRWD Revenue (TTM) data by YCharts
Despite its strong business execution, the current bear market has dragged CrowdStrike's shares down by more than 20% over the past year. The stock carries a price-to-sales ratio of 23. That may sound expensive, but the stock hasn't been valued at a level this cheap since March 2020.
CrowdStrike is winning customers throughout corporate America, which bodes well for its prospects. Global cybersecurity budgets will only rise, and the high costs of data breaches should keep pushing companies toward cutting-edge products like its Falcon platform. This year's dip in the stock is a gift for would-be investors, providing them with a chance to buy this quality stock low and hold on for years of growth ahead.
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A pandemic darling with a bright future
Will Healy (Zoom Video Communications): Investors may at first glance seem to have few reasons to buy Zoom stock in 2022. As workers return to the office, companies will probably host fewer online meetings. Moreover, Zoom has cratered along with other growth tech stocks -- down by more than 80% from the peak of $589 it hit in October 2020.
Nonetheless, Zoom maintains a 74% market share among web conferencing platforms, according to Datanyze. Its next-closest peer, Cisco, sports a 7% market share.
Moreover, the use of Zoom's services appears poised to expand. It has begun to offer whiteboard capabilities and a company-branded chat app that should reduce the need for workers to travel to meetings. It's also working to utilize metaverse features to make more meetings possible in remote settings.
Its strategy shows early indications of success. As of April 30 -- the end of its fiscal 2023 first quarter -- the number of Zoom clients that had spent more than $100,000 with it over the prior 12 months was up by 46%. Zoom now claims almost 199,000 enterprise customers, 24% more than a year ago. Revenue came in at just over $1.07 billion, an increase of 12% from the prior-year period. Admittedly, higher operating costs, losses from strategic expenses, and higher income tax expenses reduced net income over that period by 50% to about $114 million. Also, considering its full-year revenue growth of 55% in fiscal 2022, a 12% gain may not seem significant.
However, with its stock down sharply, Zoom's price-to-earnings ratio now stands at 28, compared to almost 140 last July. Webex-owner Cisco may support a lower earnings multiple at 16. But given that Cisco's struggling with flat revenue growth and Zoom is dominating its industry, Zoom's stock holds more potential to rise over time.
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Jake Lerch has positions in CrowdStrike Holdings, Inc. and IBM. Justin Pope has no position in any of the stocks mentioned. Will Healy has positions in Zoom Video Communications. The Motley Fool has positions in and recommends Cisco Systems, CrowdStrike Holdings, Inc., Salesforce, Inc., and Zoom Video Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
