Stocks have been on a winning streak this year with the S&P 500 and Dow Jones Industrial Average hitting new all-time highs. Investors are naturally feeling more cautious as they navigate the market as many growth stocks are trading at lofty valuations. What you need to do is screen through the universe of stocks to identify those with the right attributes that you can buy and own over the long term. If these companies continue to grow steadily over the years, what seems expensive now may end up being much cheaper down the road.
Therefore, it's important to focus on several key characteristics when choosing your stocks. The businesses should possess strong business models and provide a product or service that enjoys sustainable and growing demand. Ideally, the companies should also be run by a forward-looking management team that can successfully adapt to changing market conditions while growing the business further. Free-cash-flow generation is another important characteristic to look for as this implies that a company is not beholden to the banks for its expansion.
With these attributes in mind, here are three attractive growth stocks you can consider including in your portfolio.
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Asana
Asana (NYSE: ASAN) runs a work management platform that helps corporate teams to better organize and manage their workflows. Companies rely on Asana's platform for a variety of functions such as goal-setting, capacity planning, and organizing product launches.
The company's financials demonstrate strong growth over the years with revenue jumping from $378.4 million in fiscal 2022 (ended Jan. 31) to $652.5 million in fiscal 2024. Gross profit improved from $339.5 million to $588 million over the same period, with gross margin inching up from 89.7% to 90.1%.
The first six months of fiscal 2025 saw this momentum continue. Revenue increased by 11.7% year over year to $351.7 million while gross profit grew 10.6% year over year to $313.9 million. Asana also started churning out free cash flow for the first half of fiscal 2025 of $8.5 million, a welcome turnaround from the negative free cash flow of $2.7 million in the previous corresponding period.
The company signed a record number of multiyear deals during its latest quarter and also saw customers increase their outlays. Customers spending $100,000 or more on an annualized basis climbed 17% year over year to 649 with the dollar-based net retention rate for this group coming in at 103%.
Asana is also leveraging artificial intelligence (AI) within its software by launching Asana AI Teammates, an AI-powered collaboration platform that helps corporate teams achieve their goals faster. Management sees ample growth opportunities with a total addressable market estimated at $10 billion within just its core customer base. With more than a billion global knowledge workers, Asana's platform should attract companies eager to improve their productivity and enable their workers to perform tasks more efficiently.
MongoDB
MongoDB (NASDAQ: MDB) offers an alternative type of database structure known as noSQL to help development teams within companies extract useful, actionable data from a wide array of applications.
The company saw demand for its platform grow strongly in the last few years, with total revenue rising from $873.8 million in fiscal 2022 to $1.7 billion in 2024. Gross profit also increased alongside revenue, jumping from $614.3 million to $1.3 billion over the same period. Fiscal 2024 was also the first year that MongoDB generated free cash flow in the last three fiscal years, demonstrating that the business has scaled up to a level where it is self-sustaining.
The business reported solid momentum for the first half of fiscal 2025. Total revenue rose 17.2% year over year to $928.7 million while gross profit increased by 15% year over year to $677.7 million. Subscription revenue continued to make up the majority (97%) of MongoDB's total revenue and the company maintained its gross margin at the 73% level, slightly below the previous year's 74.4%.
The good news is that MongoDB continued to churn out healthy free cash flow, more than doubling it from last year's $27.2 million to this year's $60.6 million.
In early October, the company released MongoDB 8.0, the latest iteration of its software that offers significant performance enhancements along with additional scalability and data security capabilities. This latest software was also made available on Amazon Web Services, Alphabet 's Google Cloud, and Microsoft Azure, and will help even more customers to build a wide range of applications for themselves.
Management sees a long runway for further growth with a total addressable market of $94 billion for this year. This market looks set to grow at a compound annual growth rate of 13% to reach $153 billion by 2028.
Spotify
If you are an avid music listener, you would definitely have heard of Spotify (NYSE: SPOT) . The music streaming service's business is gaining healthy traction as it increases its premium subscriber base while its financials have also displayed solid improvement. The company's financials have shown steady growth over the years with revenue rising from 9.7 billion euros in 2021 to 13.2 billion euros in 2023.
Although the streaming company reported losses in all three years, it managed to churn out positive free cash flow from 2021 through 2023. Over this period, monthly active users (MAUs) climbed from 406 million to 602 million. Spotify did even better in growing its premium subscriber base, which consists of paying users. This metric went from 180 million in 2021 to 236 million in 2023.
The financial picture gets better in the first half of 2024 as revenue jumped nearly 20% year over year to 7.4 billion euros. Spotify also eked out a small operating and net income of 434 million euros and 471 million euros, respectively, reversing the net loss incurred in the prior year. The business also churned out significantly higher free cash flow of 700 million euros, a near 10-fold year-over-year increase.
Importantly, MAUs continued their rise, hitting 626 million for the second quarter of 2024, up 14% year over year. Premium subscribers also continued to climb, rising by 12% year over year to hit 246 million. Premium average revenue per user (ARPU) saw an 8% year-over-year increase to 4.62 euros, reflecting higher spending caused by price increases.
Spotify continues to innovate by introducing live listening parties featuring Billie Eilish and Peso Pluma, along with an AI-infused playlist generator that allows users to create playlists by typing in their own prompts. The company also debuted Creative Labs, its in-house creative agency that aims to help its partners build brand experiences that engage Spotify's target audience. Spotify also plans to launch Quick Audio soon, a generative AI tool that will assist advertisers in creating scripts and voiceovers.
These new features and tools should allow Spotify to capture a larger audience over time while helping advertisers easily reach their audience, thereby enhancing the appeal of the music streaming company's services -- all of which should benefit the stock.
Don’t miss this second chance at a potentially lucrative opportunity
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor returns as of October 7, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Royston Yang has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Asana, Microsoft, MongoDB, and Spotify Technology. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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