- RingCentral (NYSE:RNG): UCaaS (Unified Communications as a Service)
company with superior execution and cheap valuation
- Endava (NYSE:DAVA): technology services company that’s in the sweet spot of digital transformation
- Zscaler (NASDAQ:ZS): Cloud security vendor that has become very relevant amid vulnerabilities, data thefts and breaches
- Nvidia (NASDAQ:NVDA): multiple growth levers justify the premium valuation of stock
- Monolithic Power (NASDAQ:MPWR): less conspicuous chip play that has been a consistent performer
- Freshworks (NASDAQ:FRSH): SaaS platform focused on digitization of customer support for small and medium-sized businesses
- Daqo New Energy (NYSE:DQ) Solar supply play with superior fundamentals
Geopolitical tensions and fears of Federal Reserve rate tightening have sapped the risk appetite of investors, leaving many high-growth, quality names in oversold territory. Tech stocks invariably lead the market recovery as well as downturns. Investors in the Invesco QQQ Trust (NASDAQ:QQQ) have cut their losses, leaving the exchange-traded fund is down about 7% year-to-date (YTD). This is an improvement from the 20% plunge the ETF experienced in mid-March.
Technology is one sector that is constantly evolving, and breakthrough innovations position the innovators well on the superhighway of growth. Many of the key indexes are heavily weighted with tech stocks. The IT subsector alone accounts for about 28% of the S&P 500 index. Big tech, therefore, stands to benefit from the billions of dollars poured into index funds each year.
As an added incentive, tech stocks are slowly and steadily assuming a defensive nature due to the ubiquitous nature of technology and its pervasiveness in all walks of businesses and life.
Some of these stocks have been punished despite their fundamental soundness, solid execution and massive market opportunity. Given that the market is beginning to turn the corner, it may be worthwhile to take a look into bargain buys in the tech space that flaunt superior growth profile.
|DQ||Daqo New Energy||$43.95|
Screening Criteria Used
- Average daily trading volume of at least 100,000 shares
- Market capitalization of $300 million or more
- Revenue growth of at least 20%
- Forward revenue growth of at least 20%
- Analysts rating of “buy” and above
Hypergrowth Tech Stocks to Buy: RingCentral (RNG)
RingCentral, a software-as-a-service (SaaS) provider of a communication, collaboration and connecting platform, has seen its shares plunge about 33% YTD. This is despite the company reporting 35% revenue growth and nearly 37% non-GAAP earnings per share (EPS) growth in 2021.
All key performance indicators (KPIs) improved in the fourth quarter, with subscription revenue increasing 37% YoY and annual recurring revenue climbing 39% YoY.
The company guided to a slower, but all the same, healthy revenue growth of 25-26% for 2022. Non-GAAP EPS is projected to increase by at least 26%.
RingCentral said the global unified communication-as-a-service (UCaaS) addressable market is at over $100 billion, citing estimates by Synergy Research. This puts its penetration of the market at less than 10%, which clearly explains the scope of potential upside.
Sell-side analysts are fairly bullish on the stock. Competitive pressure from Microsoft’s (NASDAQ:MSFT) Teams in the U.S. enterprise market may weigh on growth but RingCentral’s superior execution and unique partnerships are positives, Needham analyst Ryan Koontz said in a note reviewing the company’s Q4 results.
The stock is also expected to move higher, tracking the anticipated continued fundamental improvement. The average analysts’ price target for RNG stock, according to TipRanks, is $230, suggesting roughly 84% upside from current levels.
U.K.-based Endava is a technology services provider for businesses, helping with their digital transformation. The company estimates its addressable market to grow at a robust 15.5% compounded annual growth rate to $6.8 trillion by 2023. It has a wide geographic reach and operates in 23 countries.
Endava generated revenues of GBP 446.3 million ($583.1 million) for the fiscal year (FY) 2021 that ended on June 30, 2021. This represented 27.7% year-over-year (YoY) growth. Its adjusted EPS climbed at a faster clip of 30%.
The second quarter of FY 2022 that ended Dec. 31 revealed faster rate of increases of 49.8% and 58.6%, respectively, for these two metrics. Endava had 107 clients with over GBP 1 million in revenue at the end of December. A little more than 51% of revenue came from the payments and financial services industry.
Endava had 689 clients at the end of the second quarter and the average spend of the top 10 clients increased over 40% YoY to GBP 5.42 million.
The future is even more perfect. Endava’s FY22 guidance calls for at least 44% revenue growth and 41.5% adjusted EPS growth.
The average analysts’ price target for Endava is $179.75 a share, suggesting roughly 34.5% upside from current levels.
Hypergrowth Tech Stocks to Buy: Zscaler (ZS)
Zscaler runs a 100% cloud-based SaaS subscription business and is among the frontrunners in securing the digital transformation that is well and truly underway. The company’s “zero trust” platform promises any-to-any connectivity. Its business is all the more relevant currently, given the multiple cyberattacks. data compromises and losses enterprises have to contend with these days.
The company grew its revenues 63% YoY in the second quarter that ended Jan. 31, 2022. Billings jumped 59% and deferred revenue was up 70%. On a non-GAAP basis, EPS increased to 13 cents from 10 cents.
Zscaler looks ahead to increasing its revenue by at least 55% in the FY22.
Several analysts recently trimmed their price targets for Zscaler shares. The tempered optimism was attributed to “headwinds to new business activity” due to the Russian-Ukraine war, supply chain disruptions and the specter of softer consumer spending in the wake of higher energy prices.
Even with the downward adjustment, the average analysts’ price target is $311.75, suggesting ZS stock could be in for a 30% run from current levels.
Nvidia, which was once a pureplay graphic processor manufacturer, has come a long way in recent years. The chip behemoth now has a finger in every pie, so much so that the company is expecting to make as much revenue from software as from selling chips.
At its March global tech conference, Nvidia pitched its long-term market opportunity at $1 trillion, with $100 billion from gaming and $300 billion each from software, chips and systems, and automotive. The software opportunity includes AI enterprise software and omniverse enterprise software.
In the past nine quarters, Nvidia’s slowest pace of revenue growth was about 39% in Q1 2020 and the fastest clip was about 84% in Q1 2021. Team Green has grown its adjusted EPS at a rate of 31.80% per year over the past five years.
Skeptics can argue that such an astounding growth comes at an expensive valuation. NVDA stock trades at a forward P/E multiple of 49.02 times, almost double the industry average of 26.14x. Still, there is no free lunch. The premium price investors have to pay to partake in the Nvidia hypergrowth story is justified, given the company’s many growth levers.
The average analysts’ price target of $351.74 suggests there is 35.6% upside potential for Nvidia stock.
Hypergrowth Tech Stocks to Buy: Monolithic Power (MPWR)
Kirkland, Washington-based Monolithic Power is a provider of high-performance, semiconductor-based power electronics solutions. It functions with the motto of reducing energy and material consumption — the importance of which cannot be emphasized enough in the current supply-constrained and cost inflationary environment.
The company’s products include power modules, power converters, battery management, motor drivers, analog, sensors, and inductors for electronic systems found in a variety of applications. These go into diverse end markets such as computing, automotive, infrastructure and consumers.
Revenue for the FY21 climbed 43% YoY to $1.21 billion, and thanks to superior margin, the company’s non-GAAP EPS climbed about 48% to $7.45. Analysts, on average, expect the company to grow its FY22 revenue by about 28% and EPS by about 30%.
The company is also a consistent dividend payer — rare among high-growth tech companies. It recently announced an increase to its quarterly cash dividend by a dime to 75 cents per share.
MPWR stock promises roughly 27% upside from current levels, based on the average analysts’ price target of $557.57.
Freshworks is a newbie on Wall Street. This India-headquarteredcompany is a SaaS player, delivering affordable, quick-to-implement, customer service software to small and medium-size business end users. It is backed by the likes of Alphabet’s (NASDAQ:GOOGL) (NASDAQ:GOOG) CapitalG venture capital arm and Sequoia Capital India.
Freshworks has about five products on the market. The company’s FY21 revenues climbed 49% YoY. Analysts expect revenues to rise by more than 30% over the next two years.
The company has attractive products and caters to a market, which is expected to swell to $120 billion by 2035, JMP Securities analyst Patrick Walravens said in a recent note.
The average analysts’ price target for Freshworks stock is $32.27, suggesting about 74% upside from current levels.
Hypergrowth Tech Stocks to Buy: Daqo New Energy (DQ)
Daqo New Energy is a Shanghai, China-based company, manufacturing high-purity polysilicon meant for use by photovoltaic manufacturers. The company stands out with its jaw-dropping FY21 revenue growth of about 150% YoY .
The company’s margin profile is also astounding. In 2021, gross margin was at 65.4% and the EBITDA margin was at an even better 67.5%.
Analysts, on average, expect Daqo’s revenue growth to nearly double in the next fiscal on top of the strong growth seen in 2021. Daqo expects polysilicon production to increase from 86,587 metric tons in 2021 to 120,000-125,000 metric tons in 2022.
The company said it hopes to continue expanding its market share, thanks to its production and competitive cost structure.
Average analysts’ price target for DQ stock is $88.91, leaving room for more than 90% upside potential. Investors, however, should be mindful that it is not a widely covered stock.
On the date of publication, Shanthi Rexaline 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.