Looking for low-cost stocks in the technology sector? You might consider companies that got some initial hype then cooled down. There are plenty of examples out there of investors ignoring potentially lucrative stocks early on before discovering their value later and ramping up the price. For instance, this happened to Facebook (META 1.05%) soon after its IPO in 2012.
Investors somewhat learned their lesson from this and other examples, making it harder to find inexpensive tech stocks with real potential. But it is still possible to find technology stocks that offer a low nominal cost and exhibit strong growth opportunities. For instance, investors looking for top tech stocks trading for under $20 a share might want to consider these three: Rackspace Technology (RXT), Switch (SWCH), and Viavi Solutions (VIAV 1.77%).
Let's find out a bit more about why.
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1. Rackspace Technology: Near-term gains being forecast
Rackspace describes itself as an "end-to-end multi-cloud solutions expert." It works with existing applications, data, and security to build cloud solutions. The company's goal is to create systems that increase efficiency and drive revenue across multiple clouds.
Rackspace has existed since 1998, and it made its second attempt at going public in August. Since that time, the stock has not gained traction and has fallen about 20% from its $21 per share IPO price.
In its first quarterly report since the IPO, Rackspace reported a 13% year-over-year increase in revenue. However, thanks to a higher cost of revenue, it reported a loss.
Nonetheless, its future may look brighter if analyst estimates prove correct. In fiscal 2021, analysts forecast that a 7% increase in revenue will translate into a 43% gain in net income from the previous year. Moreover, Allied Market Research predicts a compound annual growth rate (CAGR) of 29% for multi-cloud management companies through 2023.
Analyst forecasts can change. Nonetheless, Rackspace stock trades at a forward P/E ratio of about 16. Such metrics point to significant undervaluation that could bode well for investors who buy at current levels.
2. Switch: Operating in a high-growth market
Switch is a technology infrastructure company that designs and develops retail colocation data centers. It provides colocation space to more than 800 clients. Technology companies, digital media businesses, and financial institutions are among its customers.
Switch's 2017 IPO got off to a rough start as the company had lost about 75% of its value by the end of 2018. Nonetheless, 2019 marked a comeback. Amid volatility in 2020, it sells for just over $15 per share.
In the latest quarter, revenue grew by about 5% from the same quarter last year. However, net income attributable to Switch rose by around 77%, mainly because of lower expenses.
Moreover, if the analyst forecasts prove correct, profits will rise by 27% this year and 86% in 2021. This could help justify the company's forward multiple, which now stands at approximately 50.
Also, Reportlinker estimates that the global data center infrastructure market will grow at a CAGR of 22% through 2026. This indicates Switch stock could move higher over time as the company attracts more clients in this high-growth market.
3. Viavi Solutions: Looking to benefit from 5G adoption
Viavi offers testing and monitoring services to communications providers. Under its old name, JDS Uniphase, Viavi was a highflier during the dot-com boom. Today, at about $13 per share, it sells for a small fraction of its dot-com-era peak of almost $700 per share.
Nonetheless, the stock has grown by more than 120% over the last five years and could keep moving higher. This is largely thanks to the increased need for network management amid the push to upgrade to fifth-generation (5G) networks.
Like most equipment providers, Viavi's top and bottom lines were affected by COVID-19-related headwinds.
However, despite the pandemic, the company still managed to post a 5% revenue increase in the most recent quarter compared with year-ago levels. This included an all-time revenue high for its Optical Security and Performance Products (OSP) segment, characterized by strength in 3D sensing and anti-counterfeiting products. As a result, adjusted earnings surged by 17% over the same period.
Analysts expect profits to rise by 1% this year before increasing by 8% next year. Also, at a forward P/E ratio of approximately 20, its multiple stands near the stock's long-term averages. Although investors should not expect a return to the dot-com-era highs, Viavi could reconnect with investors as 5G adoption increases.
