- UiPath (PATH): The high growth stock took a beating since its listing, but will turn free-cash-flow positive in 2023 — boding well for the tech stock.
- Alibaba (BABA): The tech giant’s e-commerce dominance, low valuation metrics and healthy financial structure constitute a buying opportunity.
- Paypal (PYPL): Despite decelerating bottom-line growth, net sales will grow, and net profit is expected to recover in 2023.
- Netflix (NFLX): Analysts offer an upside of 43.35% for the stock and the streaming specialist maintains a comfortable profit margin of 12.3%.
- Kirkland’s (KIRK): The top line is set to rebound this year, and the retail specialist has low valuation multiples.
- JD.com (JD): A strong execution track record and a net income projected to turn positive in 2022, provide tailwinds for the oversold stock.
- Meta Platforms (FB): The dominant digital advertising position of the social media giant and cheap valuation metrics make FB stock a buy.
Overall, oversold stocks represent good buying opportunities for investors looking for long-term gains. However, most of the time, investing in these stocks is betting against the bearish trend of the stock — hoping for a comeback.
Timing the equity market is not an easy task, and investors seeking out oversold stocks should define a minimum risk-reward ratio of 1:3. For instance, for every unit of risk, the investment should deliver three units of expected return.
In turn, contrarian investors could gain big if the timing is just right. But most of the time, the bearish momentum takes over any virtuous news, making investments in oversold stocks risky.
To identify oversold stocks, I have looked for the companies with a poor performance in the past months, with relatively low valuation multiples, and with a positive or neutral analyst rating.
Most of these oversold stocks are high-growth companies operating in the tech industry. Tech valuations plummeted in the past months, due to excessive valuation metrics and a degrading macro environment, where rising interest rates and inflation prompt concerns over a potential economic recession in the next quarters.
With that in mind, here are seven oversold stocks to buy before they rebound.
Oversold Stocks to Buy: UiPath (PATH)
UiPath (NYSE:PATH) is a relatively new tech company that went public in April 2021. The enterprise is a leading automation software vendor, helping organizations efficiently automate business processes. With that in mind, PATH stock has dropped more than 76% since its listing and is down 59% year-to-date (YTD).
The poor performance was mainly due to the slowing growth guidance announced in the fiscal year 2022. Yet, the company beat analyst revenue and earnings per share (EPS) estimates in the past four quarters. The growth stock is also expected to lift net sales this year, up 21.4% year-over-year (YOY) to $892.25 million and by another 31% to $1.08 billion in 2023.
On the flip side, UiPath reported a net loss of $526 million in 2022. The firm also said its non-GAAP adjusted free cash flow was $21.5 million for the year. However, the firm is projected to become cash flow positive in the near term. In fact, UiPath had a comfortable cash position of $1.86 billion in the fiscal year 2022. This is more than enough to sustain its growth prospects for the near future.
Furthermore, after the sharp correction of the stock, analysts give PATH stock a “Moderate Buy” rating — forecasting an average target price of $37.03 per share. So, while the bearish momentum might prolong, UiPath is an opportunity at this price and investors might consider buying this oversold stock.
Alibaba (NYSE:BABA) is one of the world’s biggest e-commerce and mobile marketplace retailers. BABA stock plunged 62% in the past year and 27% YTD amid sluggish top-line growth expectations and China’s tech crackdown, which continues to weigh on the stock.
After revenue rose 41% in fiscal year 2021, Alibaba’s net sales are estimated to advance 19.3% YOY at the end of FY2022. On the other hand, net margins are expected to decrease significantly from 21% in 2021 to 9.56% this year.
Moreover, the tech giant has a strong financial structure, with a net cash position of $29.95 billion USD at the end of 2021, which is forecasted to surge 108.7% in 2022 to $59.14 billion USD. Besides, the dominance of the tech giant should prevail in the following years and the oversold stock is poised for a rebound in the next quarters.
Collectively, analysts expect a strong upside on BABA’s equity story. According to 18 analysts on TipRanks, BABA stock is a “Strong Buy,” with an average price target of $171.40 per share.
Oversold Stocks to Buy: Paypal (PYPL)
Paypal (NASDAQ:PYPL) is one of the main global providers of online payment services. PYPL stock’s yearly performance dropped 64.17% and is down to $86.03 per share on the year.
The oversold stock is on a decelerating bottom line path. While net sales are expected to advance at a double-digit pace, up 15.5% to $29.3 billion in 2022, net profits are forecasted to tumble 12.4% YOY to $3.63 billion. This punctual weakness is estimated to revert in 2023, as net income should rebound strongly, up 32.6% to $4.81 billion.
Despite that, free cash flow growth will accelerate this year, appreciating 17.5% YOY to $6.38 billion, whereas PYPL’s net cash position will get a hefty boost of 489% to $8.54 billion.
With that being said, the sharp deceleration of PYPL stock seems exaggerated and investors should seize this opportunity to enter this leading online payment specialist. The company still trades a stretched valuation metrics in terms of EV/EBITDA, with a forward ratio of 14.6x, yet analysts set a price target of $167.86 per share.
Oversold Stocks to Buy: Netflix (NFLX)
Netflix (NASDAQ:NFLX) is the world’s leading streaming entertainment service with 222 million paid memberships in over 190 countries enjoying TV series, documentaries, feature films, and mobile games across a wide variety of genres and languages. NFLX stock took lost more than 60% of its market capitalization YTD and the stock dipped more than 30% in the past few days, following the announcement of the first decline in subscriber numbers in ten years.
First-quarter 2022 EPS came above the analyst consensus, posting a figure of $3.53 per share compared to estimates of $2.92 per share. Top-line growth is expected to slow in 2022, growing at only 9.6% to $32.55 billion compared to the rapid growth of 18.8% to $29.69 billion in 2021.
However, the streaming company is still expected to deliver an encouraging profit margin of 15.2% in 2022, down 200 basis points year on year. In addition, Netflix’s free cash flow should advance robustly this year, posting a positive amount of $834 million compared to a deficit of $159 million in 2021.
After losing more than 60% of its valuation, the oversold stock continues to trade a stretched multiples, with a 2022 expected EV/EBITDA of 14.7x and a forward P/E ratio of 19.7x. Analysts remain neutral on Netflix’s equity story. Yet, the average price target for NFLX stock stands at $302 per share.
Kirkland’s (NASDAQ:KIRK) operates as a retailer of home decor and gifts in the United States. KIRK stock is down 70.84% in the past year and has dipped almost 50% since the beginning of the year to $7.63 per share.
The oversold stock has a rough year in 2021 after KIRK’s top-line dipped 10.1% YOY to $543 million. Net sales are estimated to advance slightly this year, up 2.8% to $558 million, whereas net profit is projected to surge 35.8% to $220 million, delivering an annual profit margin of 3.95%.
In addition, KIRK stock is well-capitalized, posting an estimated leverage ratio of only 1.17x in 2022 and a shrinking net debt of $8.38 billion, down 10.5% YOY. Analysts have a hold rating of KIRK share and have a price target forecast of $14 per share. Besides, the retail specialist has entered oversold territory, exchanging at only 4.19x forward EV/EBITDA and 10.3x 2022e P/E.
Oversold Stocks to Buy: JD.com (JD)
JD.com (NASDAQ:JD) is a China-based technology company operating in the e-commerce business and engaging in the sale of electronics. JD stock declined 29.01% in the last year and plunged 25.7% YTD to $52.04 per share.
The financials of the e-commerce specialist are expected to enhance in the next two years. While net sales growth is projected to slow from 27.59% in 2021 to 18.8% this year, JD’s bottom line should turn positive this year, which is a positive catalyst for JD’s stock. After reaching a negative figure of $550 million in 2021, net income is expected to attain $1.53 billion in 2022.
JD stock has a strong execution track record, as it beat EPS expectations in the past 13 quarters. Besides, analysts give JD a “Strong Buy” rating, with an average price target of $85.27 per share. Despite that, and while JD’s multiples remain stretched, exchanging at a forward EV/EBITDA of 17.2x, the oversold stock constitutes a long-term buy opportunity, due to enhancing fundamentals.
Meta Platforms (FB)
Meta Platforms (NASDAQ:FB) is one of the leading social media technology companies, enabling people to connect and share content through mobile devices, personal computers, virtual reality headsets, wearables, and in-home devices. FB’s stock performance took a beating after Q4 2021 earnings, where it reported for the first time an active user decline.
The social media giant faces uncertainties in the near-term, amid an intensifying digital advertising competition. FB’s top-line growth is expected to slow this year, posting a jump to $131.3 billion and rising to $153.44 billion in 2023. On the other side, net income is estimated to shrink 12.9% to $34.3 billion this year, corresponding to a comfortable profit margin of 26.1%.
Despite a weakening revenue in 2022, FB stock has a solid financial structure. Its dominance in the digital ad business and its ongoing metaverse development make the company an inevitable tech company to have in your portfolio.
The oversold stock has attractive multiples, exchanging at only 8.21x forward EV/EBITDA and 16.3x P/E. Besides, analysts deliver a moderate buy on FB’s equity story and an average price target of $312.88 per share.
On the date of publication, Cristian Docan 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.