With the advances of high-speed internet and low-cost computer storage, cloud computing has transformed how software is used. The days of loading your application from physical media are over. More often than not, software today is consumed via a subscription from the cloud. This trend makes identity management specialist Okta (NASDAQ:OKTA), modern database provider MongoDB (NASDAQ:MDB), and collaboration software giant Atlassian (NASDAQ:TEAM) no-brainer tech stocks to buy. Let’s look at why.
1. Okta: Identity management in the cloud
The task of managing who should be accessing enterprise applications is harder than ever. Teams are often dispersed around the world and many authorized users are not even employees, but contractors or freelancers. The coronavirus has pushed more companies to allow employees to work remotely, adding to the complexity. Okta was born in the cloud era to help companies manage who can log on to their growing set of cloud applications.
Okta’s main product is an identity management service that enables information technology organizations to more easily manage all the applications their users need access to. It provides a dashboard of apps that authorized users can access with a single sign-on. As users change roles or leave the organization, the service makes these changes easy to facilitate. This service has grown incredibly and is expected to become a billion-dollar revenue business in the coming year.
In the most recent quarter, its customer count grew 27% year over year to 9,400. Existing customers spent more, driving its dollar-based net expansion rate to an impressive 123% and its overall revenue growth up 42%. And the future looks bright, too. With a $55 billion total addressable market, the company is looking to put up compound annual revenue growth of 30% to 35% through 2024.
As more companies adopt more cloud software, Okta will become a must-have service for enterprises and a no-brainer pick for tech investors.
2. MongoDB: A cloud database for cloud applications
The databases that run most enterprise applications are built on a 1970s architecture that was created before mobile phones, the internet, and cloud computing. Over time, these critical software applications and the databases that power them will need to be updated. Enter MongoDB, the database built for the modern era to meet expectations of being able to access applications from anywhere on any device.
MongoDB started with its no-SQL (or non-legacy) architecture database as an on-premise solution. This enabled customers to install a highly scalable database and proprietary data on its campus. But the company’s growth today is being powered by its all-cloud solution, Atlas. With Atlas, developers can sign on for a free trial and if they like the capabilities, can build robust applications using the Atlas cloud database infrastructure. This subscription service grew at a torrid 61% year-over-year rate last quarter and now makes up 47% of the top line. Atlas customers grew 49% year over year to reach 21,000 of its total 22,600 customers.
The future looks bright as the database market is expected to grow to $97 billion by 2023. With MongoDB’s fiscal year 2021 revenue expected to be $575 million (at the midpoint of guidance), this database for the modern era is an easy decision for tech investors.
3. Atlassian: Powering teams with cloud software
Atlassian’s mission is to “unleash the potential of every team.” It has a large ecosystem of products that help teams plan, manage, execute, control, and support the creation of new and existing software applications. But these tools aren’t just limited to information technology professionals: Around half of the users of its top-selling Jira and Confluence tools are non-technical team members. Its software works best when the whole team uses it, which makes its land-and-expand growth model even more effective.
Over the past four years, its top line has grown at a 37% compound annual growth rate to $1.6 billion for its most recent fiscal year ended June 30, 2020. Recent quarterly growth has been slower as it’s transitioning 30,000 customers away from its on-premise software to its cloud-based and cloud-ready versions. The company will experience some slower growth, but in the long run, the company and customers will come out stronger, focused only on its cloud-based tools.
Investors love the strong cash position ($2.2 billion), its impressive cash flow from operations (17% of revenue), and large investment in its research and development efforts (50% of revenue). This team collaboration software specialist is set to continue to take share in its $24 billion market and is a no-brainer buy for the discerning tech investor looking to invest in a top cloud software-as-a-service player.
The bottom line for investors
Over the past year, these stocks have trounced the market by a huge margin, but this has driven their valuations to lofty levels.
Atlassian, MongoDB, and Okta are sporting price-to-sales ratios of 34, 39, and 41, respectively. But each of these three has a huge market opportunity and the tailwinds of cloud-software adoption that will power growth for many years to come. Patient investors would do well to buy shares of one or all of these no-brainer tech stocks and hold for at least the next five or 10 years.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
View more information: https://www.fool.com/investing/2021/01/14/3-no-brainer-stocks-to-buy-in-tech/