1 Glorious Growth Stock Down 71% to Buy Hand Over Fist in 2025, According to Wall Street

Data streaming is a little-known technology that plays a big role in everyday lives. It allows e-commerce websites, stock trading platforms, and even artificial intelligence (AI) app developers to create live experiences for their users.

Confluent (NASDAQ: CFLT) is the leading provider of data streaming technology, and it believes the industry could be worth more than $100 billion this year. Based on the company's current revenue, it has barely scratched the surface of that opportunity so far.

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Confluent stock is currently down 71% from its all-time high, which was set during the tech frenzy in 2021. It was unquestionably overvalued back then, but the majority of analysts tracked by The Wall Street Journal have now assigned it the highest possible buy rating. Here's why it could be a great stock to buy in 2025.

Image source: Getty Images.

An essential technology for modern businesses

Many years ago, businesses would store their valuable data on physical servers on-site and come back to analyze it at a later date. Therefore, it took time to update simple things like inventory, let alone extract useful information about customer purchase patterns. Cloud computing made it possible to store that data online instead, which made it more readily accessible, but that still wasn't the perfect solution on its own.

Confluent's data streaming platform allows businesses to ingest, process, and analyze information in real time, paving the way for exciting new customer experiences. It's the secret sauce behind live in-game wagering on your favorite sports betting platform because the bookmaker needs to analyze a real-time event, constantly recalculate the odds, feed those odds to your smartphone app, and then accept bets -- all in a matter of seconds.

Data streaming also powers things like live inventory management. Walmart uses Confluent to connect all of its physical stores with its online store, so it knows which products are in stock, at which locations, at all times. That allows the company to replenish the shelves before popular products run out, but it also means customers can trust Walmart's website when it says a product is available.

Data streaming is also becoming crucial to the way businesses deploy AI software. A chatbot like OpenAI's ChatGPT might know how much it costs to bring additional luggage on a plane because that information is readily available on the internet. But it won't know specific details about your flight, like the departure time or whether it's delayed.

However, an airline can use Confluent to create data pipelines containing that information and plug them into OpenAI's models to create a custom chatbot capable of answering highly specific questions from its customers. Not only does that create a new level of convenience for travelers, but it could also save the airline significant amounts of money on customer service staff.

Extrapolate those benefits to every other industry, and it's easy to see why Confluent's opportunity is so valuable.

Confluent has only captured a fraction of its addressable market

Confluent delivered a record $250.2 million in revenue during the third quarter of 2024 (ended Sept. 30, 2024), which was a 25% increase compared to the year-ago period. It places the company on track to deliver $1 billion in annual revenue over the next 12 months for the first time in its history.

However, that would still represent just 1% penetration of the company's estimated $100 billion addressable market, which suggests it has a long growth runway ahead.

Confluent had 5,680 customers at the end of the third quarter, which included over 40% of the Fortune 500 companies. It also included a record 184 enterprises that were spending at least $1 million per year on Confluent's software. It was the fastest growing customer cohort, increasing by 19% year over year. It highlights how important data streaming is becoming for larger, more complex organizations.

Moreover, Confluent's net revenue retention rate was 117% during Q3, implying existing customers were spending 17% more money with the company than they were a year ago. That's another positive sign of Confluent's growing importance.

Confluent is achieving those strong results despite carefully managing its growth-oriented expenses (like marketing) in order to improve its bottom line. The company still lost $257 million through the first three quarters of 2024, but that was a decline of 26% from the same period in 2023.

Plus, on a non-GAAP (adjusted) basis, which strips out one-off and non-cash expenses like stock-based compensation, the company delivered a profit of $71 million. That was a positive swing from the $19 million loss from the year-ago period.

Wall Street is bullish on Confluent stock

Confluent stock reached a price-to-sales (P/S) ratio of 60 in 2021, which was incredibly expensive. The 71% dip in the stock since then, combined with the company's strong revenue growth, has pushed its P/S ratio down to a more reasonable level of 9.2. That's actually a 46% discount to its long-term average of 17.1:

CFLT PS Ratio data by YCharts

Valuation might be one reason Wall Street is collectively bullish on Confluent. The Wall Street Journal tracks 34 analysts who cover the stock, and 20 have assigned it the highest possible buy rating. Three others are in the overweight (bullish) camp, and 10 recommend holding. While one analyst gives Confluent an underweight (bearish) rating, no analysts recommend selling.

At this writing, the analysts have a consensus price target of $33.03 for the stock, implying they believe shares could jump 23.7% over the next 12 to 18 months. However, the Street-high target is $40, which points to a potential upside of almost 50%.

Based on Confluent's enormous opportunity in the data streaming industry and the attractive valuation of its stock right now, this could be a great time to follow Wall Street's lead and buy, especially for long-term investors.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.