Hidden Gems: 2 Undervalued Tech Stocks Flying Under the Radar
While the market leaders are unquestionably sucking all the air out of the room with their overwhelming dominance, other areas of the market have quietly become quite attractive.
Dropbox DBX, and Baidu BIDU are two well-established technology companies, with top Zacks Ranks that are trading at historically cheap valuations.
Dropbox
Dropbox, one of the early movers in the cloud storage industry has experienced a rather mediocre performance since its IPO in 2018. DBX stock is essentially flat over that period. When the stock first went public it was one of the most exciting new issues in the market, but the cloud industry quickly became very competitive, and DBX’s high valuation untenable.
However, with its earnings multiple near its all-time low, and earnings projected to grow considerably over the next few years, investors may be able to purchase the technology company at a very fair valuation. Additionally, Dropbox enjoys a Zacks Rank #1 (Strong Buy), reflecting upward trending earnings revisions.
Current quarter earnings have been revised higher by nearly 10% over the last two months and are projected to grow 18.5% YoY. FY23 earnings have been upgraded by 10% over the last two months as well and are forecasted to climb 17% YoY.
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Dropbox is currently trading at a one-year forward earnings multiple of 26.2x, which is just above the industry average of 24.6x, and well below its 5-year median of 42x.
Over the last few years, Dropbox has managed to expand margins significantly, driven primarily by growth in stickiness of customers. Also encouraging, the current CEO and founder, Drew Houston still owns 25% of the shares outstanding, demonstrating his commitment to the company even after the challenging five years.
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DBX stock also just cleared a major level of resistance on the chart. The $25 level had been holding the stock down for the last 18 months, and now that it has broken free, has considerable room to the upside.
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Baidu
Baidu, the leading Chinese search engine and one of the top technology companies in the country has multiple bullish catalysts to look forward to.
Not only does Baidu trade at a nearly 10-year low in terms of earnings multiple, accompanied by positive upward trending earnings revisions, but it also stands out as the prime AI opportunity in China. AI has unquestionably been the most exciting development in markets this year, and the leading stocks have exploded higher over the last few months.
Because investors have been shying away from Chinese stocks over the last two years, this fact may be overlooked. So, investors looking for exposure to AI, that hasn’t been pumped to the moon over the last few months may have found their pick.
BIDU currently boasts a Zacks Rank #2 (Buy), reflecting upward trending earnings revisions. Current quarter earnings estimates have been revised higher by 9.9%, and are expected to grow 13% YoY, while FY23 earnings have been upgraded by 6% and are projected to climb 26.6%.
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Baidu is trading at a one-year forward earnings multiple of16.5x, which is well below the industry average of 24.6x, and its 10-year median of 30x. From a valuation perspective, this may be the cheapest BIDU has been in a decade.
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Bottom Line
Investors who like buying tech stocks, with historically cheap valuations, and upward trending earnings revisions should check out these stocks. Dropbox and Baidu are two stocks that have fallen far out of the public eye, but they have also managed to continue to grow and innovate. For discerning investors who aren’t afraid to exercise contrarian thinking, DBX and BIDU might be a good fit in their portfolio.
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Baidu, Inc. (BIDU) : Free Stock Analysis Report
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