When making investing decisions, it's important to remember that the share price doesn't necessarily mean a stock is expensive or cheap. There are stocks with high share prices that are considered to be less expensive than others with low share prices. However, for those who don't have a broker that allows them to buy fractional shares, the share price may need to be considered if investment dollars are limited.
A company's share price can be low for several reasons. Sometimes it's because the company is small or just starting out; other times it's because the stock has taken a beating in the market. Whatever the reason, it's important to understand the fundamentals of the business when looking at stocks that have low share prices.
With that in mind, here are three tech stocks trading for under $20 per share that also happen to be good buys.
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1. Mitek Systems
You may not have heard of Mitek Systems (MITK +0.00%), but if you've ever deposited a check on your bank's mobile app, it's likely you've used the company's technology to do so. Most of Mitek's revenue comes from software (subscription) and hardware revenue related to mobile check deposits, but the company also offers identity verification software as well as a product to expedite the completion of forms.
NASDAQ: MITK
Key Data Points
Mitek recently reported its fiscal 2022 Q1 results. Revenue increased 25% year over year to $33 million, which was a record amount for Q1. This increased revenue also impacted profitability and cash flow as net income grew 44% and cash from operations was $2.3 million. The quarter ended with $218 million in cash and investments on the balance sheet.
While Mitek serves over 7,500 financial services organizations, there is some customer concentration risk, with two customers representing 25% of Q1 2022 revenue. That said, it's easy to see that there are industry tailwinds behind mobile check deposit and fraud detection as our financial systems become more digitized. This concentration risk should lessen over time.
Mitek's current share price is around $13, and it trades at 4.7 times sales and 20 times free cash flow. Both of these are reasonable valuations for a company in an important, growing industry.
2. Magnite
Magnite (MGNI +1.79%) is a leader in sell-side programmatic advertising. Put simply, if you have a space to sell ads, Magnite helps fill that space. It's estimated that ad spending in the connected television (CTV) space will reach $19 billion in 2022, and Magnite is well positioned to take advantage of this growing market opportunity.
NASDAQ: MGNI
Key Data Points
2021 was a banner year for Magnite, which put up impressive year-over-year results. Revenue increased 111% to $486 million, gross profit grew 85%, and net income just barely broke even but improved substantially from a net loss of $53 million in 2020. The company also ended the year having generated $97 million in free cash flow and is guiding for a similar result in 2022.
Shares currently trade for about $12 and after a prolonged sell-off, the price-to-sales (P/S) multiple is only 3.6, near an all-time low. This is a very reasonable valuation for a company growing revenue at triple-digit percentage rates, becoming profitable, and generating free cash flow.
3. Latch
The smallest company on this list, Latch (LTCH 11.58%) has a market cap of only $512 million. However, it is chasing an intriguing market opportunity that could result in big returns for shareholders if the company can successfully execute.
Latch is a provider of full-building operating systems that are designed to streamline several aspects of living or working in a space. Essentially, once Latch is installed in a building, several features in that space can be automated through its operating system and app. This includes smart door access, delivery and guest management, and smart-home features like thermostats and lighting.
OTC: LTCH
Key Data Points
Latch makes its money on the hardware sold and also by charging the building management a subscription fee based on the number of apartments using its system. There's some stickiness to this revenue as well, considering it would be costly to switch to another provider once the Latch hardware is installed in a building.
So far, Latch's results have been impressive. 2021 ended with revenue up 129% year over year. Total bookings, which represent customers' intent to purchase Latch's products, and booked annual recurring revenue (ARR) increased 118% and 130%, respectively. The company is not yet profitable and is burning cash to grow its operations, but that's not unusual for companies in this early stage of growth.
Latch's share price is hovering around $3.50, and it has a P/S multiple of 9.9. It's very early in the game for Latch, but if its growth can continue, it's locking in stable revenue for years to come due to the permanency of its product once it's installed. This is the riskiest of the three companies mentioned here, but it also provides high upside for shareholders if the thesis plays out.
