Some companies have a great future. Some stocks are way too cheap. When these two qualities are found together in one stock, that stock should be primed for a bull run.
On that note, I unearthed two tech stocks in Wall Street’s bargain bin that appear ready to make a run. Shares of a media streaming technology expert are down more than 50% from their 52-week high, and shares of a business intelligence specialist are at an even steeper discount of 73%. I would argue that both companies are widely misunderstood and on the verge of incredible turnaround stories.
Roku
Shares of Roku (NASDAQ: ROKU) have been falling for years, and I can’t resist buying more as the shares get cheaper.
I agree that Roku was probably overvalued in the summer of 2021, but it certainly didn’t deserve an 89% price drop from that peak. Today, this past and future high-growth stock is trading at just 2.2 times its lagging sales.
Sales growth slowed during a period of the inflation crisis. Free cash flows (FCF) briefly turned negative during the same era. Now both statistics are back in the black. Top sales are up 56% in three years, while free cash flow more than doubles.
And the company is dressed for success. Roku is just waiting for the digital advertising industry to get back on its feet. The inflation crisis caused a deep downturn in that sector – what’s the point of launching lavish advertising campaigns if no one is willing to buy your goods and services? Interest in ad buying is already getting back on track, based on fantastic revenue reports from ad giants like Alphabet And The Trade Bureau. In my view, it’s only a matter of time before the market gives Roku all the credit for the enormous business opportunity ahead.
With recent platform launches in countries like Latin America and Western Europe, Roku is applying the lessons learned in North America to a global market. Broadband internet connections are becoming widely available around the world, followed by reliable digital payment services. And the cord-cutting trend is turning cable, satellite and broadcast media customers around the world into streaming households.
While the stock’s steep decline was disheartening, Roku’s fundamental business improvements and favorable industry trends point to a triumphant comeback. Patient investors who recognize the long-term potential should find the current valuation an attractive entry point. As the digital advertising market continues to recover, Roku’s robust platform and strategic initiatives can lead to significant benefits and reward those who stay the course during tough times. Remember, the growth trend is back in action and Roku is already generating hefty cash profits. If you build a great business, the investment returns will come naturally.
BigBear.ai
BigBear.ai (NYSE: BBAI) has suffered a brutal share price drop since going public via a SPAC merger in December 2021. The stock now trades below $4 per share, down 90% from its all-time high. Despite the swoon, the company’s potential in artificial intelligence (AI) and data analytics makes a compelling case for risk-tolerant investors.
The company initially forecast a compound annual growth rate (CAGR) of 40% on revenue, with the goal of growing from $140 million in 2020 to $388 million in 2023. However, annual revenue only rose to $155 million in 2023, falling far short. of its ambitious goals. Profitability was also elusive, with negative profit margins for several years. Despite these setbacks, BigBear.ai has strategically positioned itself for future growth by developing modular AI tools for data mining and analysis, serving both government and commercial customers.
Key steps include a partnership with Palantir (NYSE:PLTR) to integrate its Foundry data services and the acquisition of Pangiam, a developer of near-field AI technology, in March 2023. This $70 million all-stock deal is intended to increase revenue and enhance technological capabilities, although it will dilute existing shares.
Financially, the company has faced some headwinds. Along with broader economic challenges, major customer Virgin Orbit is going bankrupt.
But the story of the turnaround is real. Analysts currently expect modest revenue growth of 10% through 2024, in addition to improving profit margins. Going further, BigBear.ai is targeting a total addressable market (TAM) that is expected to grow from $80 billion in 2024 to $272 billion in 2028. AI adoption is exploding in the national security, supply chain management, and digital identity, putting BigBear.ai on the path to continued success.
It’s true that the company is dealing with larger, more established players such as Sales team (NYSE: CRM) and Palantir. Debt is another concern, with $194 million in long-term debt and only $33 million in cash accounts. The $200 million convertible notes issued in December 2021 and due in December 2026 could lead to further dilution if the company is unable to repay them in cash.
Despite these challenges, insiders are net buyers of BigBear.ai stock, indicating confidence in the company’s future. With a price-to-sales ratio of 2.2, BigBear.ai appears undervalued compared to peers like Salesforce (6.7) and Palantir (22.7).
So BigBear.ai offers a high-risk, high-reward opportunity. The company faces significant challenges, but strategic partnerships, acquisitions and a growing, addressable market provide a path to recovery and growth. This idea isn’t for the faint of heart, but BigBear.ai’s turnaround could be spectacular in the long run.
Should You Invest $1,000 in Roku Now?
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions at Alphabet, Roku and The Trade Desk. The Motley Fool holds positions in and recommends Alphabet, Palantir Technologies, Roku, Salesforce, and The Trade Desk. The Motley Fool has a disclosure policy.
2 Top Bargain Stocks Ready for a Bull Run was originally published by The Motley Fool
