These 2 phenomenal stocks are set to rise

After a volatile few years in the stock market, it’s difficult to identify growth stocks with clear paths up. Macroeconomic uncertainty threatens financial results and investor confidence, but long-term investors can always focus on companies with strong operating values, high-quality products and reasonable valuations. These two stocks combine all of these qualities, making them compelling candidates for investors.

AppLovin

AppLovin (NASDAQ: APP) provides artificial intelligence (AI) software that enables advertisers to reach customers in targeted and effective ways. The company aims to reduce the cost for companies to acquire customers while also reaching more qualified customers. Consumer marketing is an ever-changing landscape, but it’s undeniably valuable. Media advertising spending is nearly $400 billion annually in the United States, with digital platforms taking up 80% of total spending. These dollars have supported large companies that connect businesses with consumers, such as Alphabet, Meta platforms, Snapand Microsoft. If AppLovin can deliver demonstrable returns on ad spend to its clients, its value proposition is strong and simple.

It’s hard to argue with the company’s results. AppLovin has seen steady revenue growth, with 44% expansion in its most recent quarter. Having recently turned to profitability, its underlying performance has been even more impressive. The company’s free cash flow has grown more than 500% since 2021, capped by a 102% increase in its most recent quarter.

Investors and analysts have taken note of these impressive operating numbers. The stock is up 230% year to date, but still has a reasonable valuation. The price-to-sales (P/S) ratio is over 11, which is somewhat expensive. However, the company’s rapid growth rate and wide profit margin justify this rating. Its forward price-to-earnings (P/E) ratio is 21, and its price-to-cash flow ratio is around 25. Both are exceptionally affordable for a company with AppLovin’s growth rate.

The stock is likely to experience volatility if difficult macroeconomic times follow, and the company’s future performance will be challenged by fierce competition. However, this stock is priced to deliver huge gains if the company maintains the level of operational excellence it has achieved in recent years.

Zscaler

Zscaler (NASDAQ: ZS) is one of the cybersecurity stocks that has fallen somewhat out of favor with its peers. Since the start of 2022, Zscaler shares are down 46%, while First Trust NASDAQ Cybersecurity ETF is up 13%. CrowdStrike and Palo Alto Networks it rose even higher over the period.

The story continues

Zscaler’s lagging performance can be attributed to slowing growth combined with an unsustainable valuation. The stock’s P/S ratio was around 60 three years ago, and its forward P/E ratio was over 80 earlier this year. Those levels have been hard to sustain as growth has slowed and the stock has suffered.

Long-term investors can’t get too carried away with momentum. Zscaler couldn’t deliver the results needed to justify those aggressive ratings, but it was still impressive. The top line marches steadily higher. Even its “slow” growth rate is over 30%, which is higher than the aspirations of many high-profile companies.

Continued sales growth has driven the company close to profitability. The company is not breaking even on a GAAP basis and has impressive free cash flow expansion that is slightly outpacing sales growth.

Zscaler reported a net dollar retention of 115% in its most recent quarter. This is a clear indicator of customer satisfaction, product improvement and effective sales strategies. Gartner has rated Zscaler as a Secure Service Edge industry leader for three consecutive years, ranking it right alongside or ahead of its key competitors.

Growth investors may not be enamored of Zscaler’s past few years, but the stock is much less speculative now. It is a reliable cash flow generator with a respected product portfolio and the values ​​to back up that claim. Its forward P/E ratio is just under 60, which isn’t expensive compared to its high-profile cybersecurity peers. This is especially true when you consider the expected growth rate, which is one of the highest among established cybersecurity stocks. After a rough few years, Zscaler’s valuation now offers real upside potential.

Should you invest $1,000 in AppLovin right now?

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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Ryan Downie has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet, CrowdStrike, Meta Platforms, Microsoft, Palo Alto Networks and Zscaler. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

Prediction: These 2 Phenomenal Stocks Will Go Up was originally published by The Motley Fool