Buy The Dip? 5 Undervalued Tech Stocks With Great Potential
Inflation is currently rising at its fastest rate in 31 years. To compensate for this, the Federal Reserve is contemplating raising interest rates. Due to this expected inflation, many investors have pivoted away from high-growth tech stocks. This has created a flurry of potentially undervalued tech stocks whose stock prices have recently plummeted.
As a general rule of thumb, rising interest rates are bad for high-growth stocks in the short term. This is because higher interest rates can make other investments more attractive to investors. When they expect interest rates to rise, institutional investors tend to reallocate their funds to other assets. Even just the mention of rising interest rates is usually enough for investors to move their money.
If you are a long-term investor, this can create a great buying opportunity. In this article, I’ll break down five undervalued tech stocks that have fallen significantly from their all-time highs.
Let’s take look at five undervalued tech stocks that still have great potential.
Undervalued Tech Stocks to Invest In
No. 5 Chegg (NYSE: CHGG)
Chegg is an education technology company. It provides textbook rentals, online tutoring, and other student services. In 2020, Chegg was undoubtedly a winner of the coronavirus pandemic. Many schools were operating remotely and students turned to Chegg for help. This got investors excited about Chegg’s online-only approach to education.
In 2020, Chegg posted annual revenue of $644.34 million. This was a 56% increase from $410.93 million in 2019. It also posted a net loss of $6.22 million. This was also an improvement from 2019 when it lost $9.61 million.
Chegg stock surged about 180% in 2020. Since then, it is down approximately 75% from its all-time high. It is currently down about 70% in 2021.
In its Q3 2021 earnings report, Chegg noted that its slowdown is not unique. Web traffic is down for virtually all education sites, both free and paid. Despite this, management is still excited about the long-term market that Chegg is pursuing. In 2020, Chegg’s platform boasted 6.6 million annual subscribers. This was a 67% YoY increase from 3.9 million in 2019.
Chegg stock is up 240% over the past five years.
The next on this list of undervalued tech stocks could very well be the app that you visit if you decide to invest in any of these companies.
No. 4 Robinhood Markets (Nasdaq: HOOD)
Robinhood is a popular investing app that introduced commission-free stock trading. It went public in early 2021 at around $35 per share. Immediately after its IPO, Robinhood’s shares doubled to approximately $70 per share. Since then, Robinhood’s shares have lost approximately 60% of their value.
Robinhood has only posted a handful of earnings reports since it has not been public very long. In 202, it posted annual revenue of $958.83 million. It also reported a total net income of $7.45 million.
One reason that investors might be souring on Robinhood is because of a slowdown in user growth. From Q2 to Q3 Robinhood’s total funded accounts fell slightly. Its monthly active users also dipped from 21.3 million to 18.9 million during this time as well.
Robinhood also posted a $1.32 billion loss in Q3 2021. This is most likely a key reason why the stock is falling. However, after looking at Robinhood’s earning report, this loss is mainly comprised of outsized administrative expenses. In particular, Robinhood paid out $1.24 billion in share-based compensation to executives in Q3 2021. This is a fairly common expense for newly-public companies.
Without this $1.2 billion expenditure, Robinhood’s financial statements would look much better. It’s very possible that the market is overreacting to Robinhood’s quarterly loss.
Despite the recent stock slump, there are definitely several reasons to be excited about Robinhood’s business. First, it’s incredibly popular with younger generations. Since younger generations tend to be more active on social media, this creates lots of organic word of mouth about Robinhood. In fact, 80% of all Robinhood’s users were obtained organically.
This type of organic growth is incredibly difficult to achieve. It is also an incredibly powerful free marketing tool. This short-term dip could make Robinhood one of the most attractive undervalued tech stocks out there.
No. 3 Roku (Nasdaq: ROKU)
Roku creates digital media players that give its users access to streaming services. In 2020, lots of people were quarantined inside. In their boredom, they bought a Roku and started streaming.
Roku’s stock enjoyed a huge run during 2020. Its stock surged about 240% and reached an all-time high of approximately $468. Since then, Roku stock has lost 50% of its value.
Roku’s shares are mainly been falling because it missed its latest earnings report. In its Q3 earnings call, Roku also warned investors about supply chain issues disrupting its business.
Despite this revenue miss, Roku’s business still seems strong. Roku posted a 2020 annual revenue of $1.78 billion. This was a 57% increase from $1.13 billion in 2019. Roku also posted a net loss of $17.51 million in 2020. This was an increase of 70% from $-59.9 million in 2019. Outside of this one revenue miss, Roku has beaten its revenue expectations 3 times in a row.
Roku has also clobbered analysts’ earnings per share (EPS) expectations. Over the past 4 quarters, it has beaten expectations by 3,030%, 537%, 350%, and 666% respectively.
Roku’s Q3 earnings report also had plenty to be excited about. In Q3, Roku posted increases in net revenue, gross profit, and average revenue per user. Net revenue grew 51% year-over-year (YoY) to $680 million. Gross profit increased 69% YoY to $364 million. Roku’s average revenue per user (ARPU) also increased 49% YoY to $40.1. If it keeps up growth like this, Roku likely won’t on a list of undervalued tech stocks a few years from now.
Roku stock is up 776% over the past five years.
No. 2 Paypal (Nasdaq: PYPL)
PayPal is one of the world’s largest popular payment processing companies. It also owns the popular money sending app, Venmo.
In 2020, Paypal’s stock surged about 174% and eventually reached a high of $308 per share. Since then, the stock is down 40% from its all-time high.
There were two main reasons that PayPal’s stock has fallen. First, it missed its analysts’ revenue expectations in Q2 and Q3 of 2021. It also lowered guidance for the upcoming holiday season. PayPal says that it expects supply chain issues to impact holiday shopping as a whole. It also expects more shoppers to visit stores in-person, which cuts PayPal out of the transaction. Since July, PayPal’s stock is now down about 40%.
However, when you take a step back, Paypal’s business appears to be doing just fine. Over the past five years, annual revenue has increased by an average of 18.35%. Net income has also increased by an average of 30.23% annually. Additionally, PayPal recently struck a deal with Amazon, the world’s biggest eCommerce platform. This deal will allow consumers to make purchases on Amazon using Venmo (beginning in 2022).
PayPal also has a deep merchant partnership network. Its checkout services are now available at 75% of the top 1,500 North American and European merchants. This gives PayPal a fairly wide moat when comparing it to competitors. Of all the undervalued tech stocks on this list, PayPal is by far the most established.
PayPal’s stock is up 383% over the past five years.
No. 1 Undervalued Tech Stock: Snap (NYSE: SNAP)
Snap Inc. is the parent company of the popular picture-sending app: Snapchat. It is also the final stock on this list of undervalued tech stocks. On Snapchat’s platform, users can edit and send photos that are deleted a few seconds after being viewed.
Snap’s stock also enjoyed a huge run in 2020. It rose 400% and finally reached a peak of $83/share. Since then, it is down approximately 40%.
Snap is a relatively young company and is still on the path towards profitability. In 2020, it reported annual revenue of $2.51 billion. This was an increase of 46% from $1.72 billion in 2019. It also reported a 2020 net loss of $944.84 million.
Snapchat currently has about 306 million daily users. This puts it above Twitter (186 million) but below Instagram (1.36 billion) and Facebook (2.8 billion). However, Snapchat is incredibly popular with younger demographics. In fact, 90% of 13 to 24-year-olds use Snapchat.
On the surface, Snapchat may seem like just another simple social media site. Bears might be asking, “how is it any different than sending a picture via text?” In reality, Snap has actually expanded its platform quite a bit.
Snapchat currently has 5 core platforms. It has a map of user locations, a messaging platform, camera, stories, and “spotlight” (a way to share popular snaps with other Snapchat users). Through these 5 platforms, Snap is investing in augmented reality, gaming, community building, and more. It’s entirely possible that investors overreacted to Snap’s lack of profits in the short term. However, Snap definitely has a lot of exciting projects in the works.
For long-term bulls of the stock, this could present an excellent buying opportunity.
Undervalued Tech Stocks Opportunities
Looking for other tech stocks down from their all-time highs? Check out:
- DraftKings (Nasdaq: DKNG) – Down approximately 50% from its all-time high.
- Pinterest (NYSE: PINS) – Down approximately 50% from its all-time high.
- Alibaba (NYSE: BABA) -Down approximately 60% from its all-time high.
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I hope that you’ve found this article valuable when it comes to learning a few of the top undervalued tech stocks to buy. As usual, please base all investment decisions on your own due diligence and risk tolerance.
About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.