If you’re looking for undervalued tech stocks, you’re certainly in luck. The market is saturated with these names. Even with a recovery this year, many tech stocks are still trading at discounted levels. However, things are starting to look up. There is some pressure in the banking sector, but it seems to be contained within regional institutions, and depositors are more confident after the Federal Reserve’s bailout of Silicon Valley Bank. I believe this is one of the best times to snap up some undervalued tech stocks. Of course, the question is, which ones to buy? As per this article, I will only discuss those that are particularly undervalued or those with catalysts that can deliver a robust upside.
Some of the top most undervalued tech stocks to consider include:
Undervalued Tech Stocks: Adyen (ADYEY)
Adyen (OTCMKTS:ADYEY) is a Dutch fintech company whose stock is down 53.3% from its peak but is quickly climbing back up. Unlike most other tech companies, though, Adyen continues to scale its headcount despite market headwinds. The company believes it is still in the “investment mode,” and I agree with the assessment due to the remarkable growth metrics.
The company’s net revenue increased 30% year-over-year to €721.7 million while processed volume increased by 40% YOY. Its 3-year revenue growth rate per share is also better than 93.68% of its peers at 49%. Moreover, as per Gurufocus, it is significantly undervalued, with a $95 “fair price” value by 2027. Admittedly, ADYEY stock did get a fair share of downgrades over the past month from a few institutions. But the risk is well worth it with this kind of growth.
Undervalued Tech Stocks: HubSpot (HUBS)
HubSpot (NYSE:HUBS) is a customer relationship management company that took quite a lot of damage during the selloffs. The company’s top-line growth peaked at 52.5% in Q2 2021 before steadily trending downwards to 27.4% in Q4 2022. It caused a 67.7% decline before slowly recovering to its current level.
Many businesses cut their marketing budgets last year and continue shrinking their marketing headcount. These trends are heavily impacting the growth of HubSpot. Hence, investors are no longer willing to pay a steep price for the stock. However, HubSpot is starting to bounce back due to its consistency. Revenue is slowing down in the near term, but the company has a massive total addressable market. I believe once monetary policy starts to soften and businesses start expanding their marketing budgets, HubSpot is set to regain its premium.
Down 33% in the past year and 60% from its peak, Splunk (NASDAQ:SPLK) definitely fits the theme of this article due to its valuation. The company produces software for searching, monitoring, and analyzing machine-generated data via a web-style interface. In its Q4, the company’s revenue surged 39%, exceeding analyst expectations by a wide margin. Splunk is also rapidly narrowing its losses, beating EPS expectations by 77.2%. Meanwhile, its cloud segment is the frontrunner, up 54% YOY. Despite this, the forward earnings multiple sits just above 31 times.
With its financials shining, I see very little as to why the company shouldn’t be valued much more steeply. Big-name analysts also believe the same. BMO Capital analyst Keith Bachman raised the price target to $113 from $100, Needham raised it from $115 to $120, and Piper Sandler raised it to $118, citing “a better than expected margin outlook.”
Cloudflare (NYSE:NET) is another company with solid growth that isn’t getting much attention from the Street. Besides solid financials, the company also has a strong footing due to its importance for the Internet. It handles ~18% of all traffic on the internet and has a content delivery network market share of almost 80%. This market is expected to grow at a CAGR of 32.7% through 2030 to $85.3 billion. Indeed, Cloudflare is the leading company here, and its top line is growing consistently between 40-50% YOY.
As my colleague Vandita pointed out, the company is targeting $5 billion in organic revenue within five years. That’s certainly possible, as per its CEO, the company has “penetrated less than 1% of our identified market for products we already have available today.”
The company has grown to become an essential part of the internet, and I don’t see the growth going away anytime soon. Furthermore, template-based web development is picking up, with many platforms like Hostinger offering Cloudflare protection for all new websites. Gurufocus believes a fair price for the stock would be $216.7 by the end of 2024. Admittedly, I only see that happening if the Fed loosens policy earlier than expected, but there is clearly a lot of optimism for NET stock.
Atlassian (NASDAQ:TEAM) is an Australian software development company in a much different position than Adyen. The company recently cut 5% of its headcount, resulting in $70-75 million in additional losses due to severance pay. Naturally, the stock is sliding back down as the company already had $205 million in losses in Q4. Its earnings multiple is also quite rich due to its growth history.
However, it doesn’t mean it’s all doom and gloom for Atlassian. There could be more pain in the near term, but the recent decline has bought TEAM stock back into oversold territory. The company has a remarkable retention rate of 98%, providing much-needed revenue visibility in the long run. Additionally, its gross margin of 82.8% is better than 87.8% of its peers, and I believe this can translate into much higher profit margins once the company reorganizes its headcount and reduces discretionary costs.
Revenue growth remains a strong point, largely due to high customer retention metrics. Its losses are also tolerable since the company doesn’t have much debt. And with $698.8 million in net cash, it is well-positioned to safely ride out the storm and bounce back in the long run.
Wix.com (NASDAQ:WIX) is a cloud-based web development platform. It lost over 80% of its value during the selloffs but is starting to recover from the headwinds, up 20% year-to-date. The company’s Q4 earnings beat estimates, delivered promising results, and guided strong sales for 2023.
The company posted revenue of $355 million, up 6% year-over-year. The company also expects non-GAAP profitability this year and stated, “Accelerated profitability drives new goal of achieving positive GAAP net income in FY 2025, ahead of plan.”
Macroeconomic trends do pose some risks, and Gurufocus says that Wix could be a value trap. Nonetheless, Wix has massive upside potential from here due to the uptick in web development. The company has a loyal customer base of over 200 million users worldwide and continues to innovate its products and services to meet their needs. The company also has a strong presence in emerging markets like India and Brazil, where online penetration is still low.
Furthermore, analysts from RBC Capital, Needham, Piper Sandler, and Barclays increased their price targets on the stock. In the near term, though, it is subject to some high volatility and competition. However, for investors who are willing to take some risk and have a long-term horizon, Wix.com could be a rewarding buy at its current price level.
Fiverr (NYSE:FVRR) has a very sticky buyer base and is one of the most undervalued tech stocks, in my opinion. The company’s advantage in the burgeoning gig economy makes it well-positioned to become a household name.
The global freelance marketplace is expected to reach $18.3 billion by 2031, and I believe it could be even higher due to recent workplace trends. Fiverr’s high marketing spend tapping into this addressable market, coupled with its customer retention rate, is directly aiding its top line. As I’ve written before in one of my columns:
“Regardless of the near-term outlook, the company’s remarkable customer retention and continual reinvestment in itself suggest significant potential for long-term growth. With its cash reserves growing annually, FVRR is a multi-bagger investment that could generate substantial profits in the coming years.”
On the date of publication, Omor Ibne Ehsan 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.