Our favorite stocks to buy are those that we term “emerging blue chips,” meaning a company with a proven product that has a sustainable advantage and serves a huge market, explains Mike Cintolo, editor of Cabot Growth Investor.
These emerging blue chips show rapid (often accelerating) sales and earnings growth with huge estimates going forward; and a strong and well-traded stock that big investors feel comfortable accumulating.
We think Twilio (TWLO) has all of these characteristics, as its easy-to-use communications platform is becoming as key to many firm’s operations as, say, the Amazon's cloud platform —companies can automate responses, call routing, email and much more (including payments, contact center services, etc.) to customers or employees, paying Twilio on a usage basis.
Shopify, Trulia, Airbnb, Uber, Lyft, Nordstrom, Salesforce, Zendesk, Hulu, eHarmony are all customers, but the service is very pervasive; in Q3, total active customer accounts rose to over 61,000 (up 32%).
All told, Twilio thinks it’s playing in a multi-billion-dollar market, and it’s certainly taking advantage of that opportunity — sales growth (up 41%, 48%, 54% and 68% during the past four quarters) is accelerating.
Meanwhile, earnings are in the black (though should remain mostly near breakeven as Twilio invests in growth) and all the sub-metrics (customer acquisition costs, revenue per user, upsells, etc.) look great.
After a long post-IPO slumber, TWLO came alive in February of this year, rallying strongly through September. The 35% correction that followed was sharp, but normal, and after some big ups (after earnings) and downs (mid November), TWLO has stormed back above its September high.
The latest decline wasn’t fun, but wasn’t abnormal — we’re staying on a buy rating, with a relatively loose stop in the upper $70s as the current game plan.
