The Market Isn’t Devoid of Reasonably Priced Stocks.
Discovering budget-friendly tech stocks can be challenging since they often have high valuations due to investors’ enthusiasm about their potential. Occasionally, you can find tech stocks at a discount because a group of investors has lost confidence in the company.
Palantir
Palantir (NYSE: PLTR) offers AI-driven data analytics software to retail clients and governments. After securing all possible government business, Palantir entered the larger civilian sector, giving the company two avenues for growth.
In Q4 2022, government revenue increased 23% yearly to $293 million, while commercial revenue rose 11% to $215 million. Palantir’s stock is appealingly valued partly because its revenue growth rates aren’t exceptionally high. However, Palantir is achieving something a few software companies are: profitability.
In Q4, Palantir reported an EPS of $0.01 and projected positive EPS throughout 2023, demonstrating management’s commitment to responsible growth. At about 9.3 times sales, the stock is a good deal compared to other software stocks that can’t generate a profit.
Accenture
Implementing data analytics software like Palantir’s can be costly and confusing. Tech consulting firms like Accenture (NYSE: ACN) provide valuable assistance. Accenture offers technical expertise in cybersecurity, cloud computing, and AI to help companies lacking the necessary know-how to develop their desired solutions.
With companies cutting expenses, Accenture’s growth has slowed. The company provided weak guidance for revenue growth in FY 2023 (ending Feb. 28), with revenues increasing by only 9% in local currency.
This downturn caused Accenture’s stock to fall, bringing its valuation down.
Now priced just below its long-term average, Accenture is attractive, particularly considering its free cash flow (FCF) is below its all-time high.
DigitalOcean
Cloud computing is a rapidly expanding trend in the business world, with several leaders emerging. However, small and medium-sized businesses often don’t get favourable pricing or the support they need for such a significant transformation, as major tech companies prioritize larger clients. DigitalOcean (NYSE: DOCN) caters to this market as a cloud computing provider specializing in smaller clients.
The market for IaaS and PaaS for individuals and small businesses with fewer than 500 employees is projected to grow at a 26% compound annual rate by 2026, reaching a $195 billion market opportunity. In 2022, DigitalOcean was expected to generate $576 million in revenue, which leaves plenty of room for growth.
DigitalOcean is a young, unprofitable company, but it is FCF positive, boasting a solid 22% margin in Q4 and a 13% margin throughout 2022, indicating improving margins. The company also guided for a 21-22% FCF margin for 2023 and robust revenue growth of 23% to $710 million.
Despite its achievements, the stock trades at only 6 times sales, a remarkably low valuation for a young, growing tech company. DigitalOcean is seizing a niche market segment, and although small and medium-sized businesses may not invest heavily in cloud computing in 2023, long-term trends favour this shift. The value of DigitalOcean is outstanding over the next three to five years, making it a great stock to buy and hold.
Finding undervalued tech stocks can be challenging, but it’s not impossible. Palantir, Accenture, and DigitalOcean are three examples of affordable stocks with strong growth potential, making them ideal investments for the next few years. By focusing on niche markets and delivering value to their customers, these companies are well-positioned to capitalize on long-term industry trends. Investors looking for promising tech stocks with reasonable valuations should consider adding these companies to their portfolios.
