In a note to clients last Friday, Goldman Sachs GS expressed their concern about the valuation of tech stocks, reminding investors about the two-fold problem tech stocks are currently facing. Right now, tech stocks have a sky-high valuation, and are facing increased regulation from potential lawsuits, which ups the risks taken when investing in these stocks. Goldman believes it’s time to reduce exposure to tech stocks, especially as the threat of antitrust investigations from the federal government looms. David Kostin, Goldman’s chief U.S equity strategist stated, “History shows that stocks with the highest EV/sales ratios typically underperform peers over the long term,” further expressing the concern the bank feels about these over-priced tech stocks.
In spite of Goldman Sachs blowing the whistle on overly priced tech stocks, there are still some software stocks that have been able to maintain a low valuation. On top of being able to stay clear of the trend of skyrocketing valuations in the tech sector, some software stocks have shown tremendous signs of growth. In addition, these software stocks also have an immunity to the other side of the problem as well: these companies are not the target of increasing regulations from the current political landscape. The growth potential these stocks possess and their current low valuation make them tech stocks to keep on your shortlist.
MiX Telematics Limited
MiX Telematics Limited MIXT provides fleet and mobile asset management solutions. The company offers vehicle tracking services for the consumer and commercial vehicle market worldwide. MiX Telematics is an all-around solid stock with versatility that can appeal to a variety of investor interests. MiX Telematics Limited is currently a Zacks Rank #2 (Buy) with Style Scores of A across the board. The company’s valuation distinguishes the stock from the rest of the industry. MiX Telematics has a P/E ratio of 18.6X to go along with a PEG ratio of 0.74. Both ratios and its earnings yield of 5.35% are drastically lower than the industry average, making MIXT’s valuation ideal for investors trying to steer away from tech stocks with inflated valuations.
MiX Telematics also has incredible growth potential, with expected long term (3-5 years) EPS growth of 25%. Furthermore, the company’s recent quarterly EPS posted growth of 26.32% compared to the previous quarter. MiX Telematics has great valuation in a tech industry that has been plagued with inflated valuations. The company’s strong growth potential paired with its low valuation make it a stock that tech investors should definitely consider.
j2 Global JCOM provides cloud-based communications and storage messaging services. The company offers online fax, virtual voice, hosted email, email marketing, online backup and unified communications services. j2 Global is a solid choice for investors looking to get around over-valued tech stocks. The stocks fairly set valuation and strong growth potential can make the stock appealing to investors looking for versatility.
j2 Global is currently sitting at a Zacks Rank #1 (Strong Buy) as earnings estimates for fiscal 2019 have been revised upwards; the Zacks Consensus Estimate has also jumped 27 cents in the past 60 days for 2019. The company’s P/E ratio of 12.3X and PEG ratio of 1.54 distinguish the stock from the rest of the Internet-Software industry, while its earnings yield of 8.14% blows the rest of the industry out of the water as it is 14X the industry average. These metrics allow value seeking investors to rest assured that the price they are paying for the stock is more than fair.
In addition to its sound valuation, j2 Global has a Zacks Style Score of B in Growth. The stock has an estimated long-term EPS growth rate of 8% to go along with a solid YTD price change of +24.83%; the company’s EPS growth compared to the previous fiscal year has also increased by 18.75%. j2 Global has also been able to outperform the broader computer software market since around February 2019, further establishing the stock as a strong buy.
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