Two years ago, IonQ‘s (NYSE: IONQ) stock sank to an all-time low of about $3. The quantum computing company lost its luster as it missed its own growth estimates, racked up steep losses, and grappled with the departure of its co-founder.
Those issues overshadowed the growth potential of its “trapped ion” technology, which shrinks the width of quantum processing units (QPUs) from a few feet to a few inches, as well as the broader disruptive potential of its quantum computing systems — which can process tasks at a much faster rate than traditional binary computing systems.
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But today, IonQ’s stock trades at about $40. Its stock surged as it signed new deals, increased its exposure to the artificial intelligence (AI) market through partnerships and new tests, repeatedly raised its guidance, and agreed to acquire its industry peer Qubitekk. It now expects its revenue to grow 75%-93% for 2024, while analysts anticipate 89% growth.
Those growth rates are stunning, but IonQ is still unprofitable and its stock trades at a whopping 109 times next year’s sales. So instead of chasing IonQ at these nosebleed meme stock levels, it might be smarter to buy two other growth stocks that are trading at more reasonable valuations: SentinelOne (NYSE: S) and Rocket Lab USA (NASDAQ: RKLB).
SentinelOne is a cybersecurity company that plans to replace all human analysts with AI algorithms across its Singularity XDR (extended detection and response) platform. It believes that automated approach is faster and less prone to making errors.
It deploys its XDR services through a mix of on-site appliances and cloud-based services. That hybrid approach insulates it from internet outages which can disrupt fully cloud-native cybersecurity platforms like CrowdStrike‘s Falcon.
SentinelOne’s revenue more than doubled in fiscal 2021, fiscal 2022, and fiscal 2023 (which ended in January 2023). It continued to gain big customers (which generate at least $100,000 in annual recurring revenue), while its dollar-based net revenue retention rate stayed comfortably above 100%. But its revenue rose 47% in fiscal 2024 as the macro headwinds made it harder to land new contracts, and it expects 32% growth this year.
That slowdown, along with SentinelOne’s persistent losses, rattled the bulls. But from fiscal 2024 to fiscal 2027, analysts still expect its revenue to grow at a compound annual growth rate (CAGR) of 27% as the macro environment stabilizes. Its stock still looks reasonably valued at less than 8 times next year’s sales, and it should narrow its net losses as economies of scale kick in. Its low enterprise value of $7 billion could also make it a tempting takeover target for a larger industry peer.
RocketLab develops partially reusable rockets for NASA, the U.S. Space Force, the Swedish National Space Agency, and other big customers. Its flagship Electron orbital rocket, which has been successfully launched 57 times over the past seven years, can carry payloads of up to 300 kilograms. But its next rocket, the Neutron, will have a much more impressive maximum capacity of 15 metric tons when it launches next year.
RocketLab has already launched six Electron rockets in 2021, nine rockets in 2022, and 10 rockets in 2023. It launched another 12 rockets in the first nine months of 2024, and it ended the third quarter with a backlog of $1.05 billion. Its total revenue surged 240% in 2022, but it grew just 16% in 2023. It is expected to increase by 77% in 2024.
With an enterprise value of $13 billion, RocketLab’s stock might seem pricey at 30 times next year’s sales. But from 2023 to 2026, analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 55% as it ramps up its launches. It’s also expected to gradually narrow its net losses as it scales up its business. RocketLab still faces plenty of competition from SpaceX and other private start-ups, but there could be plenty of room for all of these companies to grow in this nascent market.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
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