2022 has been a rough year for tech stocks. After a boom during much of the pandemic, concerns about rising interest rates and a recession have cooled off the tech sector this year, especially growth stocks with high valuations.
Though the bear market may be demoralizing for investors, it's no excuse to avoid the sector. In fact, bear markets often present great opportunities to buy beaten-down growth stocks, as many of them are undervalued based on temporary headwinds. Coming out of the Great Recession, a number of growth stocks delivered multi-bagging returns, and this sell-off could offer another chance to grab some top stocks on the cheap. Keep reading for two tech stocks that could do just that.
1. Okta
Okta (OKTA -0.89%) shares got slammed after its most recent earnings report. The company said it was having challenges integrating Auth0, the customer identity software company it acquired last year. It also stepped back from its long-term guidance of $4 billion in annual revenue by January 2026.
Despite those setbacks, Okta remains the leader in cloud identity software, providing the tools that allow employees and customers to seamlessly and securely log in and stay connected. Okta values the market it competes in at $80 billion; currently, its annual revenue is below $2 billion.
The company has delivered remarkably consistent revenue growth, even during the pandemic, with revenue increasing by 37% or more every quarter since its initial public offering (IPO) in 2017. Even though the stock plunged in its second-quarter report, revenue grew 43%, and the company raised its guidance for the year.
Okta stock is now down nearly 80% from its peak last year, and the stock trades at a price-to-sales ratio of just above six, making it the cheapest it's ever been according to that metric. The company should recover from the recent setback as it's hired new salespeople to replace the ones it lost following the merger. Further, it's adjusted its go-to-market strategy to make it easier for customers and its sales force to understand which customer identity product -- Okta or Auth0 -- is best for them. If those changes have the desired impact, Okta stock should be rebounding shortly.
2. Axon Enterprise
Axon Enterprise (AXON 1.27%) doesn't fit the conventional definition of a tech company. The company makes tech devices and software for law enforcement agencies, including TASER electrical stun guns, body cameras, and cloud software that helps agencies manage things like records and evidence.
Its products reinforce one another, making it a unique company with essentially no direct competition across its suite of hardware and software products. TASER, a brand name, is synonymous with stun guns, showing its dominance in that market. And Axon is the leader in the body and dashboard camera market, a growing category at a time when evidence of police misconduct has grown, thanks to smartphone cameras.
As a result of that market leadership, Axon has steadily delivered strong growth and solid profits. In its most recent quarter, revenue rose 31% to $286 million -- led by the TASER and body and dashboard cameras -- while its revenue from new software-as-a-service products nearly tripled, showing the investments in software are paying off. Adjusted net income in the quarter rose 16% to $31.8 million, and the company raised its full-year revenue guidance by 27% to $1.07 billion-$1.12 billion.
With a leading market position, a track record of innovation, and new products like drone software, virtual reality training tools, and license plate recognition technology, Axon stock should continue its track record of outperformance over the long term.
