Despite the fact fewer up-and-coming tech companies are vying for Wall Street’s affection these days, plenty of investment options remain in the sector. Of course, some of the biggest tech darlings sport astronomical valuations.
Premiums have long been the norm in tech — a sector associated with growth — with investors willing to pay an arm and a leg for the innovation and long-term potential associated with the likes of Amazon (AMZN) and Netflix (NFLX).
Even factoring in the recent market rut, Amazon stock is trading for more than 850 times its trailing earnings, while Netflix is “cheaper” at a multiple of 350. At the same time, stocks like Tesla (TSLA) — which has gained almost 750% over the last five years — don’t even have a price-earnings ratio, since the denominator of that equation is lacking.
Still, it’s not impossible to find some bargain-priced picks in the world of tech — especially in the current market environment. Instead, the tough part is deciphering whether or not these “cheap” stocks are actually a good deal.
Let’s take a look.
Dirt Cheap Tech Stocks: Canadian Solar Inc. (CSIQ)
Forward P/E: 8.3
Trailing P/E: 6.4
Long-Term Average: 16.1
Over the last 12 months, Canadian Solar Inc. (CSIQ) is sitting in the black. That’s a miracle considering the market’s downward spiral and CSIQ’s 30% plummet so far in 2016 alone.
The stock’s current price tag of $20 is about half its 52-week high, just 8.3 times estimated 2016 earnings and 6.4 times the company’s trailing earnings. That trailing multiple is less than 40% of the stock’s long-term average, too.
Why the recent haircut? One word: China. Concerns about the country’s slowdown have been to blame for much of the recent market rout, but solar stocks have been particularly battered considering China was the world’s largest solar market last year.
If you’re optimistic about China’s prospects, this discounted tech stock makes for an interesting play. Solar stocks are notably volatile — CSIQ sports a beta north of 3, for instance — but volatility can mean big gains if timed properly.
Plus, Canadian’s earnings are on track for a sharp decline in 2015, but are expected to remain more or less flat the year after, then ramp back up with annual growth averaging 20%.
That’s especially solid considering the stock’s valuation.
Dirt Cheap Tech Stocks: SeaGate Technology PLC (STX)
Forward P/E: 7.4
Trailing P/E: 6.7
Long-Term Average: 9.4
Looking strictly at the numbers, SeaGate Technology PLC (STX) seems to be even more of a bargain than Canadian Solar. But digging a little deeper, this bargain-priced pick is throwing up some red flags.
SeaGate Technology is still thought of as a traditional hard-drive company, yet higher-margin, flash-based memory chips are expected to make traditional hard drives obsolete — especially as costs continue to come down.
Over the past year, STX stock has lost 50% of its value despite the company’s acquisition of Avago Technologies’s Flash Business in late 2014. Sure, STX popped 8% Friday on an earnings and revenue beat, but the expectations were low enough for a toddler to clear. SeaGate’s earnings actually declined by more than 70% year-over-year, and sales plummeted 19% … but the Street was just happy sales didn’t fall the expected 20%.
That leaves shares of STX at $29, which is 6.7 times the company’s trailing earnings and 7.4 times its forward earnings. That would be a bargain if STX were growing, but it’s set for a precipitous 30%-plus drop this quarter.
Despite STX’s pop, the long-term slide leaves STX yielding nearly 9% with a middle-of-the-road payout ratio, but a lack of earnings growth could mean a lack of dividend growth.
Meanwhile, the company’s debt has been growing steadily; the current pile of more than $4 billion is nearly double the company’s book value and comes with interest rates as high as 7%.
Dirt Cheap Tech Stocks: Apple Inc. (AAPL)
Forward P/E: 9.5
Trailing P/E: 10.6
Long-Term Average: 14.3
Apple Inc. (AAPL) has watched its multiple slide since late 2014 as the tech behemoth matures from a growth stock to a value or even income stock.
Of course, that transition is really just a nice way of pointing out the company’s slowing growth — something that was solidified in its recent earnings report. Apple’s first-quarter forecast came in light, while Tim Cook braces Apple for its first quarterly sales decline in over a decade.
But — thanks in part to the market’s volatility — that outlook looks pretty baked into the price of Apple stock already. At $96, AAPL shares are trading for just over 10 times trailing earnings.
And despite said outlook, Apple is still on tap to grow earning by 12% per year, long term; which works out to an attractive price-earnings growth ratio of just 0.89 if the company can deliver.
Need I even mention the stock’s 2% dividend yield or $216 billion cash pile?
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she was long AAPL.