From semiconductors to satellites, these tech stocks are bargains after temporary setbacks
When the Nasdaq touched all-time highs recently, investors neglected a few companies that trade on the exchange. Tech stocks that were left behind and trading closer to 52-week lows are on sale for a reason. When markets are still hot and reliant on trading momentum, few will bother to look at out-of-favor shares.
Some of these tech stocks posted weak quarterly results that disappointed investors. Management announced contract delays or one-time expenses that investors did not expect. That led to dramatic selloffs.
In other cases, a stock trended lower during the sector-wide rally. The reasons the market lost interest in them are less clear. Readers will profit by taking the extra step to find out why these shares fell.
Eventually, markets will notice these stocks once they post expanding revenue and higher profits. To get there, the companies need an upcoming catalyst to unlock the value.
These seven tech stocks faced setbacks earlier this year and are now down too far to overlook today:
- Corsair Gaming (NASDAQ:CRSR)
- JFrog (NASDAQ:FROG)
- II-VI (NASDAQ:IIVI)
- Maxar Technologies (NYSE:MAXR)
- Datto (NYSE:MSP)
- StoneCo (NASDAQ:STNE)
- Uber Technologies (NYSE:UBER)
Tech Stocks: Corsair Gaming (CRSR)
Reddit’s r/WallStreetBets occasionally bids Corsair stock higher because of its 12% short float. The premium gaming supplier posted revenue growth of 24% year-over-year (YOY) to $472.9 million. It earned 36 cents per share.
Corsair benefited from a 41% YOY growth in gamer and creator peripheral sales. CFO Michael G. Potter blamed the weaker-than-expected adjusted EBITDA of $51.6 million on higher costs. He said, “we experienced higher than expected costs for logistics, and we expect logistics costs to remain elevated in the third quarter.”
For the year, Corsair’s expected revenue of $1.9 billion to $2.1 billion is below consensus forecasts.
The market’s negative reaction following the quarterly report is irrational. Corsair is a good long-term investment whenever the stock dips. Investors need only accumulate shares on weakness. The esports market is growing, a trend that will benefit the company.
Corsair does not face much competition, either. Dell’s (NYSE:DELL) Alienware does not offer the level of customizability that Corsair offers. Plus, Corsair has a wider choice of peripherals, which it may cross-sell to current and new customers.
JFrog (FROG)
JFrog is a universal artifact management solution for DevOps. The company sells cloud and self-hosted subscriptions. Though revenue grew by 34% to $48.7 million, the stock is not cheap. The price-to-sales (P/S) ratio is almost 20x.
The software firm forecasts revenue as high as $53 million in the third quarter. It also expects to see an operating loss between $2.6 million to $3.6 million, or between three and four cents per share. For 2021, JFrog will report revenue between $202 million to $205 million. It will lose four to five cents per share.
Since the earnings report in August, the stock trended lower and fell to a double bottom. The stock could have a technical bounce. But to justify a long-term investment, JFrog needs to grow its revenue.
The company is already creating a positive cash flow of $18 million. It acquired Vdoo to add security features and integrated it with the JFrog platform. Upswift was also recently acquired by the company, which will facilitate deployment to devices.
Three analysts offer an average price target of $53.67 on FROG stock, per TipRanks.
Tech Stocks: II-VI (IIVI)
II-VI manufacturers optical materials and semiconductors. In the fourth quarter, it posted non-GAAP earnings per share of 88 cents. Revenue grew by 8.3% to $808 million.
Markets did not praise II-VI’s solid results. The stock is stuck in a trading range despite record quarterly revenue and bookings. Backlog as of June 30 is at a new high of $1.3 billion. The company also posted broad revenue growth. For example, communications revenue rose by 11% YOY thanks to demand for coherent optics and datacom transceivers.
For the full year, free cash flow topped $428 million. CEO Vincent Mattera Jr. said, “We continue to invest in manufacturing capacity for our silicon carbide platform, a disruptive technology in future RF and power electronics applications.” II-VI is managing the impact of the ongoing chip shortage, alleviating investor worries in the coming quarters.
The company will continue investing in its manufacturing capacity for its silicon carbide platform. This is a disruptive technology in the radio-frequency and power electronics applications space.
IIVI stock is underperforming as investors wait for the Coherent (NASDAQ:COHR) acquisition to pay off.
Maxar Technologies (MAXR)
Maxar provides satellite imagery solutions for customers ranging from private sector organizations to the U.S. Department of Defense. The stock plunged after second-quarter 2021 results, when the company said it would delay the Legion launch.
In the quarter, the company posted an EBITDA of $132 million. Its Earth Intelligence segment saw revenue grow by 1.8% YOY to $283 million, while Space Infrastructure revenue rose by 12% YOY to $206 million. CEO Dan Jablonsky said the latter sector lifted EBITDA margins.
Maxar signed its first Legion capacity sale in the quarter. This adds to the four contracts announced last quarter. Customers are upgrading ground infrastructure to prepare for Legion.
The company disclosed delays in the timetable for WorldView in its 10-Q filing:
“We have continued to encounter certain issues with component suppliers and subsystems (including software, integration and testing) related to our WorldView Legion satellite constellation, which have led to delays from our expected timetable. We have resolved some of the supplier issues and continue to make progress on the other issues identified.”
Component shortages are common. Expect Maxar stock to recover as it resolves the supply problem and gets back on schedule.
Tech Stocks: Datto (MSP)
Datto is a provider of cloud-based software and security solutions for delivery by managed service providers (MSPs).
In the second quarter, the company posted revenue growth of 22% YOY to $151.6 million. Subscription revenue rose by 21% YOY. However, the stock is underperforming because investors worry about the competitive environment.
The landscape in the MSP market did not change much in the past few quarters, according to CEO Tim Weller. But Datto sells a broad platform of solutions, and its decade-long experience helps the company stand out from others in the field. It works with customers in first recommending basic antivirus for endpoint protection.
Aggressive investors could look at SentinelOne (NYSE:S) or CrowdStrike (NASDAQ:CRWD) for more robust solutions that incorporate artificial intelligence. Still, MSP stock is trading close to yearly lows, so investors are paying less for its growth. Furthermore, Datto is protecting customers from live attackers up and down the full security stack.
Watch for Datto to accelerate its revenue growth. At a low P/S ratio, investors seeking cybersecurity stocks should consider MSP shares at current levels.
StoneCo (STNE)
Fintech firm StoneCo plunged to 52-week lows unexpectedly. The company said that regulatory changes resulted in higher delinquencies. Investors were alarmed by StoneCo’s difficulty in collections and worse recoveries from non-performing clients.
The company is also changing its accounting method for its credit portfolio. New contracts that originated from Q3 2021 onward will count on an accrual basis instead of a fair value method. StoneCo said this will give investors better transparency.
It will resume scaling its credit solutions in three to six months. Investors are unsettled by this delay, but once the company adds guarantees from debit card transactions, Brazilian merchants will get better disbursements from its clients.
COO Lia Matos said that the company will turn around its credit operations. Once it assesses its collaterals and the need for regulatory or legal actions, investors will have fewer uncertainties.
In the interim, StoneCo will focus on growing its platform business. This includes supporting more channels for merchants. By pursuing those platform services, the company will benefit from better opportunities and spur growth.
Tech Stocks: Uber Technologies (UBER)
Ride-sharing firm Uber recently broke out of its yearlong downtrend. The market could renew buying interest in Uber, especially after it raised its outlook for the third and fourth quarter.
In the second quarter, gross bookings were up by 114% YOY to $21.9 billion. Including $272 million in stock-based compensation expenses, Uber earned $1.1 billion.
CEO Dara Khosrowshahi said that investing in drivers paid off — monthly drivers and couriers in the U.S. increased by almost 420,000 from February to July. The platform is attracting more drivers, thus increasing Uber’s moat.
Additionally, large investments to improve marketplace balance will lead to smaller losses in future quarters.
Uber expects gross bookings between $22 billion to $24 billion for Q3. Better results from its mobility and delivery segments improved its outlook compared to previous estimates. CEO Khosrowshahi said the mobility business saw demand for Rasier that outpaced supply hours.
As more people go out and use the company’s services, Uber needs to add driver incentives. This would increase supply levels and revenue as well as profits for investors.
This article originally appeared at InvestorPlace.
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
