Tech Turnaround: 7 Stock Innovators Poised to Rise Higher
There’s no denying that the recent selloff — especially in the technology space — rattled investor nerves. At one point, it seemed as if the innovation sector could do absolutely no wrong. Of course, that’s usually about the time when circumstances go awry. Sure enough, a meltdown ensued, driving down several popular tech stocks. However, that could also spell opportunity for the daring.
To be clear, I’m not trying to make light of volatility. Certainly, when the market loses double-digit percentage points over a short period of time, it demands respect and closer investigation. At the same time, some evidence is emerging that the red ink has been overblown. For example, The New York Times noted that recession fears are not unfounded but may not be worth panicking over.
If that’s the case, investors may want to look to the present the down-cycle as a chance to scoop up discounts. Below are several tech stocks to consider.
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Amdocs (DOX)
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An Israeli multinational telecommunications technology firm, Amdocs (NASDAQ:DOX) offers specialized software and services for the communications, media and financial service sectors. While DOX stock hasn’t been the most impacted by the recent downturn, the price action has been choppy over the past 52 weeks. However, as circumstances normalize, DOX could be one of the more intriguing tech stocks thanks to its broad relevancies.
Right now, Amdocs trades hands at 1.92X trailing-year sales. That’s lower than the prior year’s average multiple of 2.06X. Also, the underlying infrastructure software industry features a multiple of 3.9X. Therefore, DOX stock has plenty of room to run. It’s worth pointing out that Amdocs carries a levered free cash flow (FCF) of $737.59 million. Presently, investors are paying about 13X for this cash flow.
Looking ahead, analysts are targeting earnings per share of $6.45 on sales of $5.01 billion for fiscal 2024. That’s up 9.14% and 2.6%, respectively. Given that shares are already undervalued relative to sales, DOX may be one of the tech stocks to consider picking up.
Similarweb (SMWB)
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A global software development and data aggregation company, Similarweb (NYSE:SMWB) brings to the table web analytics, web traffic and digital performance-related services. With enterprises competing aggressively in the digital ecosystem, it’s never been more important to have an edge. That’s where Similarweb enters the stage front and center. SMWB stock has been struggling since March of this year but a turnaround could be coming.
While it’s a small enterprise, it’s consistently profitable. In the past year since the second quarter, Similarweb posted an average EPS of 3.5 cents. This easily beat the consensus view of 1 cent. Based on the average of the past four quarters, the earnings surprise came out to 91.65%.
What makes SMWB stock even more attractive is the valuation. Right now, shares trade hands at 2.67X trailing-year revenue. That’s only a little bit higher than the past year’s average multiple of 2.57X. More importantly, the underlying application software industry runs a multiple of 3.89X. So, SMWB still has plenty of theoretical growth potential.
Analysts are also looking for fiscal 2024 sales to hit $246.88 million, up 13.2%. Thus, it’s one of the undervalued tech stocks to consider.
MoneyLion (ML)
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A financial technology (fintech) firm, MoneyLion (NYSE:ML) provides personalized products and financial content for U.S. customers. The company’s platform offers access to banking, borrowing and investing solutions. Primarily, it’s known for RoarMoney, an insured digital demand deposit account. In addition, the company brings to the table cryptocurrency accounts, which should be popular with emerging generations.
As you can see from the charts, ML stock is risky. Things were look swell up until the tail end of May. From there, circumstances have not favored MoneyLion. However, contrarians may want to give the fintech firm another look. Financially, it’s been performing well, delivering an average EPS of 3 cents in the past year. That’s much better than the expected loss per share of 38 cents.
ML stock trades at 1.02X sales, lower than the prior year’s average multiple of 1.31X. It’s also significantly lower than the company’s application software peers.
Best of all, experts are looking for fiscal 2024 sales to land at $526.62 million. If so, that would be up 24.4% from last year’s $423.43 million. Translation? It’s one of the tech stocks to consider.
Alarum (ALAR)
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Another entity in the infrastructure software space, Alarum (NASDAQ:ALAR) provides internet access and web data collection solutions throughout the Americas. It also serves Europe, Southeast Asia, the Middle East and Africa. Primarily, Alarum offers a security blanket against ransomware, viruses, phishing campaigns and other online threats. Due to the rise of such nefarious activities, ALAR stock commands great pertinence.
Now, if there is a drawback to Alarum, it’s that the company isn’t consistently profitable. What made ALAR stock lose significant equity value since July is its earnings misses. It has a chance to rectify matters when the company discloses its Q2 report toward the end of August. Until then, brave contrarians can speculate ahead of time.
Right now, shares trade hands at 5.58X last year’s revenue. Admittedly, that’s much higher than the prior year’s average metric of 1.45X. However, analysts are projecting robust growth in fiscal 2024, to the tune of $36.17 million in sales.
Assuming a shares outstanding count of 6.87 million, ALAR stock would be trading at 4.09X projected 2024 revenue. The multiple could come down even further as fiscal 2025 sales could land at $44.1 million. Thus, ALAR is one of the tech stocks to buy.
Western Digital (WDC)
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Falling under the computer hardware sector, Western Digital (NASDAQ:WDC) develops, manufactures and sells data storage devices and solutions. It brings to the mix a wide range of product categories, including hard disk drives and solid state drives for desktops, laptops and gaming consoles. Considering that such devices are unlikely to fade in relevance anytime soon, WDC could be an intriguing wager among discounted tech stocks.
To be fair, Western Digital sometimes struggles in the profitability department. In the past year, the company posted an average loss per share of 10 cents. However, this figure beat the consensus estimate of a loss of 41 cents. What’s more, in the first half of this year, the company averaged an EPS of almost $1.04. This figure handily beat the consensus view of 69 cents.
Currently, WDC stock trades hands at 1.5X sales. That’s a modest bump up from the prior year’s average of 1.37X. However, it’s much lower than the computer hardware sector’s average multiple of 2.24X. Also, here’s the kicker: analysts are targeting revenue of $17.58 billion by year’s end. That’s up 35.2% from the prior year, making the projected multiple even more attractive.
Turtle Beach (HEAR)
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Operating in the consumer electronics space, Turtle Beach (NASDAQ:HEAR) manufactures gaming headsets and other accessories for the entertainment space. These include keyboards, mice and similar peripherals. It also offers keyboards under the Roccat brand, which is one of my go-to tools for my line of work. Thanks to broad relevancies, HEAR represents an intriguing opportunity among tech stocks.
As you might guess from the charts, Turtle Beach can be financially wild. In terms of earnings, sometimes the company delivers a big beat and sometime it doesn’t. Overall, in the past four quarters, the consumer electronics specialist posted an average EPS of 6 cents. That was more than enough to beat out the expected loss per share of 4 cents.
Enticingly, HEAR stock trades at a 1X multiple to revenue. Yes, that’s a noticeable percentage-wise increase from the prior year’s average of 0.81X. However, the consumer electronics industry runs a multiple of 2.2X. So, HEAR is objectively undervalued.
To bring home the point, analysts are looking at fiscal 2024 sales to hit $376.86 million. That’s up a staggering 46% from last year. It’s one of the tech stocks to gamble on.
Data Storage (DTST)
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Easily one of the riskiest ideas among discounted tech stocks, Data Storage (NASDAQ:DTST) operates in the information technology services space. Per its public profile, Data Storage offers data management cloud solutions in the U.S and international markets. Specifically, it brings a suite of multi-cloud IT solutions, including cyber and endpoint security.
Unfortunately, DTST stock is extremely volatile. While it’s up on a year-to-date basis, the equity has been in free fall in the trailing month. Part of the reason comes down to the shaky financials, with the company lacking in consistency with its earnings performances. However, it should be noted that Data Storage trades at roughly 3.7X levered FCF, which is surprising. Typically, small entities trade at a very high multiple to cash flow.
Another enticing factor that could benefit DTST stock is that it trades at only 1.21X sales. In contrast, the IT services sector runs an average multiple of 2X. Moreover, analysts are anticipating fiscal 2024 sales to hit $28 million. That would imply a growth rate of 12.2%, making the valuation even more undervalued.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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