Over the long term, earnings growth is the primary driver of stock market returns. And, the same principle applies to individual stocks. As growth companies compound revenues, they grow EPS at a higher rate as they achieve scale and show higher operating leverage. As a result, the stock price follows EPS higher.
But, where do you find these growth stocks with excellent earnings growth potential? The best areas for growth are new industries or technologies where companies have a long growth runway. The secular growth in cybersecurity, cosmetics and the cloud backs their bullish thesis. Today, they offer substantial gains as they grow in their respective industries.
Palo Alto Networks (PANW)
One of the best ways to capitalize on the cybersecurity theme and get rich is by buying Palo Alto Networks (NASDAQ:PANW). The company remains one of the best growth stocks in the technology sector.
Cyberthreats are becoming more intense, as the recent Change Healthcare cyber attack proved. With hackers leveraging artificial intelligence (AI) and some state actors involved for geopolitical reasons, the threat environment will remain elevated. Thus, the heightened threat plus regulatory requirements like the Securities and Exchange Commission (SEC) disclosure rules make cyber investments a priority for companies.
Also, Palo Alto Networks is well-positioned to profit from these trends. The fact that Change Healthcare contracted the company to clean up its attack highlights its competitive advantage. Moreover, its growth in recent years reinforces this view. Revenues have grown at a 23% compounded annual growth rate over the past five years.
Still, despite its scale, it is reporting impressive growth. In the recent third quarter of fiscal year 2024, revenues grew 15% year-over-year (YOY) to $2 billion. Remaining performance obligations grew 23% YOY to $11.3 billion. Furthermore, profitability was impressive, with non-GAAP net income of $454.9 million, increasing 26.5% YOY.
With a robust platform offering product leadership in 23 cyber categories, Palo Alto Networks is the most comprehensive defense platform. At 12 times forward EV/Sales, PANW stock is set for impressive annual returns.
e.l.f. Beauty (ELF)
After another blowout quarter on May 22, e.l.f. Beauty (NYSE:ELF) remains one of the top growth stocks to buy. Indeed, investors were impressed by the quarter, and as a result, the stock soared 18%.
From a fundamental standpoint, Q4 of fiscal year 2024 highlighted continued solid execution on all measures. And, looking at full-year financial results, revenues were up an impressive 77%. So, this was the company’s best fiscal year performance in terms of revenue growth.
The reports get better! e.l.f. Beauty increased its market share for the fifth consecutive year. Moreover, Q4 of fiscal year 2024 was the 21st consecutive quarter of both market share and revenue growth. On that note, market share increased by 325 basis points.
Regarding 2025, the beauty brand issued a rosy outlook predicting $1.23 to 1.25 billion in revenues, representing 20-22% growth. e.l.f. Beauty is well positioned to achieve these targets due to its value. While legacy competitive brands cost $9.50 and $20 per product, respectively, ELF’s average price point is $6.50.
Lastly, the cosmetics maker continues to lead with innovation. It holds the number one or two position in 18 cosmetic segments, comprising about 80% of its cosmetic sales. Thus, with such a powerful franchise offering value, ELF stock will soar.
Snowflake (SNOW)
This data warehouse and data lake company is betting on its data cloud and artificial intelligence integrations to deliver the next growth phase. After 34% YOY growth in the recent quarter, Snowflake (NYSE:SNOW) remains on its growth trajectory.
AI bridges structured and unstructured data and will allow customers to extract valuable information from their mountains of data. That’s why Chief Executive Officer (CEO) Sridhar Ramaswamy believes that it will turbocharge Snowflake’s capabilities. On the earnings call, he noted that AI would improve Snowflake’s product across the data, collaboration and application layers.
And, the company has been investing in AI products like Cortex, which is already available to customers. Cortex AI is ramping up, with 750 enterprise customers using the product. Other AI products like Iceberg, Snowpark Container Services and Hybrid Tables will be available later this year. Also, the company announced it had developed its own large language model, Artic, which outperformed leading models like Mixtral 8x7B and LLaMA-2-70B in benchmark tests.
Therefore, Snowflake is a top enterprise AI data platform. Upcoming AI products will drive revenue acceleration, making it one of the best growth stocks to buy. SNOW stock is a buy, considering its 34% product revenue growth and 128% net revenue retention.
On the date of publication, Charles Munyi had a long position in ELF 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.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.