3 Cloud Stocks That Have Doubled and Still Have Room to Grow

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Having a stock that can double its value in just a year is an incredible feat, and investors will typically shy away from these fast runners, often over high valuations or concerns that the best days might already be behind them. In some cases, avoiding such high flyers can be a mistake, as that type of sterling performance could also be a precursor of what is yet to come.

A number of these companies can be found in the software-as-a-service (SaaS) market, the largest segment of the cloud computing industry. SaaS spending is expected to top $73.6 billion in 2018 and could account for 45% of total application software outlay by 2021, according to market research company Gartner.

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With that in mind, let's look at several companies in the rapidly expanding SaaS market that have seen their stock prices double over the course of the past year but might still have a significant amount of gas left in the tank. Read on to see why Atlassian (NASDAQ: TEAM), Okta (NASDAQ: OKTA), and HubSpot (NYSE: HUBS) might deserve your consideration.

There's no "I" in TEAM

One of the most valuable tools for businesses these days is the ability to communicate in real time, as evidenced by the popularity of privately held Slack. However, sometimes the need to collaborate goes beyond simply communicating, and that's where Atlassian comes in. The company provides platforms that allow users to communicate, collaborate, delegate tasks, share content, and manage projects. The Atlassian Marketplace offers more than 4,000 third-party apps to customize the experience and recently passed $500 million in lifetime purchases.

Atlassian's offerings have resonated with customers, which now number more than 125,000, a roster that includes more than two-thirds of the Fortune 500. For its just-completed 2018 fiscal year, revenue was $874 million, up 41% year over year, with subscription revenue of $403 million, up 67%. The company isn't yet profitable, but it has produced more than $281 million in free cash flow over the trailing 12 months, resulting in a 32% free cash flow margin. It's important to note that Atlassian trades at more than 19 times its forward price-to-sales ratio, but for now, the combination of top-line growth and solid cash flow has allayed investor concerns about its pricey valuation.

What's that password?

In a world where digital security is more important than ever, there's an ongoing battle between human nature and business necessity. Remembering a growing number of requisite passwords is becoming increasingly difficult, causing employees to take potentially costly shortcuts. That's where Okta (pronounced Ahk-tuh) comes in. The company has been public for fewer than 18 months, but it has already made a splash.

Okta's digital identity and access management platform stores a multitude of employee login credentials that can be accessed with a single sign-in. But that's just the beginning, as the cloud-based platform also handles staff access to a variety of business software and applications while helping eliminate the temptation to reuse old passwords.

The company's platform has been a hit with business, and that shows in its success. Okta's revenue has jumped 41% year over year during the past 12 months to $324 million, and the company expects about 44% growth this fiscal year. Okta is planning for breakeven free cash flow within the next two quarters and has yet to produce a profit as it works diligently to expand its market share. Like many of its high-growth cloud brethren, Okta sports a lofty valuation, with a forward price-to-sales ratio of 21, but with 57% top-line growth in the most recent quarter, it looks a bit more reasonable.

Advertising that hits the spot

The changing media and technological landscape has had far-reaching repercussions, not the least of which has been the rapid adoption of digital advertising. The tactics used by advertisers have gotten increasingly aggressive, with banner ads, pop-ups, and emails flooding consumer inboxes.

One company taking a completely different approach is HubSpot. The inbound marketing and sales software specialist is a pioneer in its field, seeking to publish and promote content that helps customers find products they're already looking for. As an example, HubSpot provides customers with a combination of search engine optimization and carefully curated social media campaigns -- among other less-invasive tactics.

This advertising revolution is gaining steam. HubSpot has grown revenue to $441 million over the past four quarters, up 39% year over year, and that's on top of 42% growth over the preceding 12 months. Its customer base is climbing as well, topping 48,000 and up 40% year over year. That growth has come at a cost, however, as the company continues to forgo profits to expand its customer base. HubSpot also sports a frothy valuation, currently at 12 times forward sales. It's important to consider its consistent top-line growth near 40%, and analysts expect its adjusted earnings per share to grow 93% per year over the coming five years.

Are more gains ahead?

Each of these companies has more than doubled its share price over the past year, significantly outperforming the S&P 500 during the same period. These high flyers aren't for the faint of heart, however, sporting lofty valuations and no profits among them. That said, each is pioneering technologies that could potentially become industry standards in the near future while giving investors an opportunity to benefit from the growing trend toward cloud computing. A small investment in these companies could result in big gains.

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Danny Vena owns shares of HubSpot and Okta. The Motley Fool owns shares of and recommends Atlassian, HubSpot, and Okta. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.