1 under the radar growth stock to buy now

Many investors have probably never heard of Elastic (NYSE: ESTC), or they never took the time to immerse themselves in its activity. However, this under-the-radar stock has risen 60% last year and 136% since its IPO in 2018, outperforming the broader market in both cases.

Most importantly, Elastic is implementing an effective growth strategy, which is reflected in its strong financial performance. That’s why I think this title will continue to beat the market for years to come. Here’s what you need to know.

Image source: Getty Images.

Market opportunity

Elastic is a research company. At the heart of its technology stack is Elasticsearch, a platform that functions as a data store, as well as a real-time search and analytics engine. This tool allows clients to record and index data of all types, then query, analyze and learn from that information.

To simplify the most common use cases, Elastic has built applications on top of its technology stack. For example, Enterprise Search allows customers to browse documents, systems, and tools to find a particular resource. It also allows customers to integrate search functionality into websites and applications. In fact, the elastic powers Ubercarpooling app, helping the company match drivers with nearby drivers. And Elastic feeds the search engine behind ShopifyHelp documentation, allowing traders to quickly find the appropriate information.

Elastic also provides predefined tools for observability and security. Its platform records relevant data points, then leverages artificial intelligence to categorize information and detect anomalies in applications, networks and infrastructure. In turn, this allows IT and security teams to identify, investigate, and resolve issues. Collectively, these solutions bring Elastic’s addressable market to $ 78 billion, according to management.

Growth strategy

Elastic uses a freemium pricing strategy, allowing developers, IT pros, and security analysts to test products on a limited basis. So far, this tactic has proven to be a powerful engine of growth. According to DB Engines, Elastic is the most popular enterprise search engine on the market, surpassing the second place Splunk by a wide margin.

As a result, Elastic has rapidly grown its customer base in recent years. But the company was also successful in retaining its existing customers. In fact, Elastic posted a “slightly less than 130%” expansion rate in the last quarter, suggesting that customers are spending more over time.


Q1 2019

Q1 2022






Source: SEC elastic deposits. CAGR = compound annual growth rate. Note: Q1 2022 ended July 31, 2021.

Currently, Elastic generates subscription revenue in two different ways: on-premises software deployments and software as a service (SaaS). Management sees the SaaS (Elastic Cloud) product as a great opportunity for future growth, as customers avoid the cost and complexity of managing the underlying infrastructure.

To that end, Elastic Cloud contributed 27% of FY2021 revenue, up from 22% in 2020 and 17% in 2019. This growth is encouraging, but the company still has a long way to go.

Financial performance

Digital transformation has made data more plentiful than ever before, creating challenges and opportunities for businesses. Specifically, data treasures are only useful if you have the tools to unlock the value of that information. Of course, Elastic fits that bill, and the company has posted impressive results over the past three years.


Q1 2019 (TTM)

Q1 2022 (TTM)



$ 184.9

$ 672.7 million


Source: SEC elastic deposits, Ycharts. TTM = 12 rolling months. CAGR = compound annual growth rate. Note: Q1 2022 ended July 31, 2021.

Here’s the gist: Elastic helps customers leverage research to improve efficiency, infrastructure performance, and security – all of which are essential to virtually every business. In addition, Elastic has a top-notch product and a great market opportunity, two attributes that are expected to drive growth in the years to come. That’s why this under-the-radar growth stock looks like a smart long-term investment.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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