Thus far, 2022 has not been kind to technology investors. The S&P 500 index has slumped 9.7% year to date, the Nasdaq Composite index's level has slid 14.5% across the stretch, and many growth-dependent tech stocks have suffered even bigger pullbacks.
While it can be tough to watch your portfolio value take a hit, there's also a silver lining to the recent market turbulence: The sell-offs mean that some fantastic companies are trading at cheaper valuations that leave much more room for big upside. With that in mind, read on for a look at two discounted stocks that have what it takes to be explosive winners.
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1. Unity Software
The market has fallen out of love with growth-dependent technology stocks, and Unity (U -0.06%) has been caught up in the shift. The company's share price has slipped 33% across 2022's trading, and it's down roughly 54% from the high that it hit last November, but the stock seems to be primed for a comeback. While the game development and content creation specialist's valuation has taken a hit, the business outlook here remains incredibly promising.
Unity saw demand for its services surge in 2020 as people flocked to video games and other interactive content amid shelter-in-place and social-distancing conditions. Despite a challenging basis of comparison created by the height of pandemic-related tailwinds, the company has continued to deliver rapid growth. Revenue surged 44% last year, management is guiding for sales to climb roughly 35% in 2022, and the business's market position has never been stronger.
Unity is the top provider of development-engine services for mobile, augmented reality (AR), and virtual reality (VR) platforms, and it continued to gain market share in each of these categories in 2021. The company has also made big moves to expand into other areas of the visual-content creation space. Unity's acquisitions of visual effects leader Weta Digital and other studios have paved the way for the company to launch a wide range of new services that will help its customers create visual media.
While other new game development engines will certainly emerge, it's likely that Unity will retain a leadership position in the mobile, AR, and VR categories. Adding new features and providing support services to keep up with the demands of content creators is resource-intensive, and most new engines will likely be for smaller, less commercial games and experiences.
2. Appian
The digital transformation trend is still in the early stages of unfolding, and Appian (APPN -0.06%) is making it easier for businesses to get up to speed and evolve to meet the demands of the market. With the company's low-code app-building software, even workers without coding knowledge can create, deploy, and adjust applications. For businesses looking to automate processes and improve workflows without hiring expensive internal or external development teams, this service can be hugely valuable.
Cloud subscription revenue increased 39% year over year to $51.2 million in the fourth quarter, overall revenue rose 29% to $105 million, and it's clear that Appian's software remains in high demand. Customers already on board with its subscription-based cloud platform spent 16% more on its services compared to the prior-year period, and the company ended 2021 with a 98% cloud subscription renewal rate.
Appian has also continued to onboard new customers at an encouraging clip. Particularly noteworthy is the company's progress in adding large customers, with its number of customers with contracts worth more than a million in annual revenue increasing 36% annually in 2021. Aided by new client additions and strong net revenue retention rates, the company's midpoint guidance calls for cloud subscription revenue to grow 31% and 20.5% this year, respectively.
Investors are shying away from growth-dependent software stocks, and the shift has resulted in Appian's share price falling roughly 77.5% from the high it hit in January 2021. The company now has a market capitalization of roughly $3.8 billion and is valued at approximately 8.6 times this year's expected sales, and I think it will go on to be a big winner for long-term investors.
