Traditionally, surprises are par for the course in the stock market. This year, the significant rally in tech stocks was a big attention-getter, although many of those stocks have been giving back their gains in recent weeks.
Even with many stocks gaining value in 2023, some still fell behind. A bad performance in a single year doesn’t necessarily mean a stock is a poor investment. For example, the tech giants that now have trillion-dollar market caps had down years in the past.
A big dip doesn’t guarantee that a stock is a buying opportunity. However, investors who look at a stock’s valuation and financials have a better chance of pinpointing underdog candidates. These are three stocks that seem poised to make comebacks.
Perion (NASDAQ:PERI) is an ad-tech company based in Israel. The country’s current conflict has caused many Israeli-based companies’ stock prices to tumble.
Shares started the year quite well, up by over 60% year to date (YTD) in April. But, the stock returned all of its gains and is now down by 3% YTD. While the stock price change suggests otherwise, Perion has still achieved exceptional performance.
In the second quarter, the company’s revenue grew by 22% year over year (YOY). Also, the ad-tech company increased its net income by 10% YOY. PERI is clearly profitable, regularly maintaining double-digit profit margins.
Some investors may be spooked about buying an ad-tech company when Meta Platforms (NASDAQ:META) warned investors about an ad slowdown. However, Perion continued to deliver double-digit YOY revenue and earnings growth in 2022. In that same year, many large advertising companies reported YOY revenue and earnings declines. These companies reported low-single-digit growth rates during their better quarters.
Perion shares currently trade at an 11 P/E ratio, an 8 forward P/E ratio, and a PEG ratio below 0.50. It will be difficult to find any profitable company growing as quickly as Perion with the same valuation.
Okta (NASDAQ:OKTA) has been under fire in recent weeks with multiple hackers breaking into their databases. While that news development would result in any company becoming mainstream news, it’s an even bigger story since Okta is a cybersecurity company.
Companies trust Okta to keep their information safe. Okta has delivered on that promise for many years, but it has dropped the ball recently. Investors punished the company and sent shares tumbling by 20% in one week.
Now, the big drop has Okta down 3% year to date (YTD). Shares have gained only 16% over the past five years. Shares were just a few dollars away from reaching $300 in February 2021. Currently, the company is valued at $67 per share.
It’s a dramatic reversal of fortunes, but Okta can recover. The company still posts exceptional top-line and bottom-line growth. OKTA grew its revenue by 23% YOY in the second quarter of 2024.
The GAAP net loss showed at $111 million compared to a GAAP net loss of $210 million same time last year. Okta made good progress with minimizing its losses while achieving good revenue growth.
Okta isn’t the first company to fall into a controversy like this, and it won’t certainly be the last. Accumulating shares while sentiment is low can reward long-term investors.
Semrush (NYSE:SEMR) is a search engine marketing (SEM) software that helps business owners rank for keywords and optimize their ad campaigns. Shares have been roughly flat YTD but previously traded above $30 per share.
Semrush increased its revenue by 19% YOY in Q2, and also reached over $300 million in annual recurring revenue. SEMR will continue to expand its ARR by attracting new customers. In addition, Semrush can hike its monthly subscriptions to expand profit margins in the future.
Specifically, the company lags is profitability. However, it reported a net loss of $0.3 million in the second quarter. It’s a big improvement from the $8.9 million net loss reported same time last year.
Flipping the switch to profitability can help Semrush gain ground in 2024. Although unlikely that Semrush will quickly return to its all-time high, investors should expect a multi-year journey before shares return to $30.
On this date of publication, Marc Guberti held a long position in PERI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.