2022 has gotten off to a messy start for technology investors. The fears of rising interest rates and the fallout over the war in Ukraine have caused many tech stocks to take a tumble in the first few months of this year. While it is never fun to experience a sharp drawdown, if you have spare cash coming in, now could be the optimal time to buy shares of leading technology companies with their shares trading at a discount.
Here are three tech stocks investors can scoop up on the cheap right now.
1. Autodesk: a leader in 3D design
First up, we have Autodesk (ADSK 0.31%), a seller of various design software programs. The company focuses on serving architects, engineers, and construction workers, with dozens of different software programs under its umbrella. From a business perspective, the most important ones are Revit, AutoCAD, Fusion 360, Maya, and Autodesk Build.
Autodesk benefits from the rising demand for digital design tools and the requirements around the world to construct buildings using building information modeling (BIM) standards. BIM is a process where all stakeholders in building design collaborate on a 3D model. Autodesk's Revit is the market-leading BIM software program, with an estimated 70% market share around the world. With no major markets at 50% BIM penetration but increasing government requirements for architects and construction companies to use the standard, Autodesk should have a steady tailwind of demand growth for Revit over the next decade.
In fiscal year 2023 (the current year), Autodesk expects to generate just over $5 billion in revenue and $2.17 billion in free cash flow. A market cap of $42.6 billion gives the stock a forward price-to-free-cash-flow (P/FCF) of 19.6. This is much below the current average of 33 for the Nasdaq Technology Sector Index. With such a durable tailwind for growth over the next decade, this makes Autodesk stock a buy right now.
Sticking with engineering software, our second company is Ansys (ANSS -0.26%). Compared to Autodesk, which is the leader in design software, Ansys is the leader in simulation software for engineers. What does this mean? Ansys has a portfolio of software tools that help engineers simulate real-world scenarios like heat and fluid transfer, lighting and lasers, electric circuits, and many others. Enabling engineers to perform tests on a computer can save time, money, and resources, making Ansys products invaluable tools for research and development (R&D) departments.
Ansys is always on the cutting edge of simulation technology, which has helped the company ride different secular tailwinds in various industries. For example, in March, it announced a renewed agreement with wind turbine operator Vestas to help it develop turbine controllers, improving the company's ability to efficiently produce renewable energy. This highlights one of the many examples where Ansys provides value through simulation and optimization for deep technology fields.
In 2022, Ansys expects to generate around $2.1 billion in revenue at the high end of its guidance. Compared to its current market cap of $25.3 billion, the stock trades at a forward price-to-sales ratio (P/S) of 12. This looks expensive, but with strong non-GAAP (adjusted) operating margins over 40%, Ansys is an extremely profitable business, mitigating this high P/S ratio. If you believe simulation will play an increasing role in engineering departments in the coming years, Ansys could be a great buy-and-hold right now.
Lastly, we have Roku (ROKU -0.34%), a popular maker of internet-connected TVs (CTVs). As of the end of 2021, the company has 60.1 million active accounts around the world, growing 17% year over year.
You may know Roku for its TV sales, but its business model goes much beyond hardware. Specifically, it aims to become a giant advertising marketplace for the CTV industry, meaning that whenever an advertisement is played on a streaming channel like Hulu, Pluto TV, or Roku's own Roku Channel, the company keeps a portion of every ad dollar as revenue.
You can see the rapid growth of Roku's advertising business in its platform segment. Platform revenue hit $426 million in the fourth quarter of 2021, up 41% year over year, with 60% gross margins. These gross profit dollars are not leading to much in bottom-line profits right now, but over time, as the business scales, investors should expect this segment to generate a lot of cash for Roku.
Roku generated $2.77 billion in revenue in 2021. Compared to its market cap of $15.4 billion, the stock has a trailing P/S ratio of 5.6. With 51% consolidated gross margins, this P/S seems very cheap, especially if platform revenue continues to grow at a strong double-digit rate.
And it looks like CTV advertising spending is just getting started. Third-party analysts expect CTV advertising to grow 39.2% in 2022, making it one of the fastest-growing segments in all of advertising. If CTV advertising continues to grow at a rapid rate over the next few years, it is likely that Roku's overall revenue and profits will grow as well. At a discounted valuation, this makes the stock a great long-term buy at these prices.