Finding "cheap" tech stocks isn't always easy -- they're often highly valued because investors are excited about their prospects. Sometimes, you can find discounted tech stocks because an investor cohort lost faith in the company. These three stocks fit that narrative and are also attractively valued, making now an excellent time to purchase them.
So let's look at this trio and find out why they are priced as they are.
1. Palantir
Palantir (PLTR 2.44%) provides artificial intelligence (AI) powered data analytics software to retail customers and various governments. After capturing all of the government business it could get, Palantir expanded into the much larger civilian industry, which has provided the company with two growth arms.
In the fourth quarter of 2022, government revenue grew 23% year over year to $293 million, while commercial revenue grew at an 11% clip to $215 million. Part of the reason Palantir's stock is attractively valued is that its revenue growth rates aren't incredibly high. However, Palantir is doing something few software companies currently do: turning a profit.
In Q4, Palantir posted earnings per share (EPS) of $0.01 and gave guidance that it will produce positive EPS throughout 2023. This shows management's intention to grow responsibly, which investors should applaud.
With the stock trading at around 9.3 times sales, it's a good value at this price compared to many other software stocks that cannot produce a profit.
2. Accenture
Deploying data analytics software like Palantir's is expensive and confusing. That's where tech consulting firms like Accenture (ACN 0.17%) step in. Accenture provides technical expertise in areas like cybersecurity, cloud computing, and AI, among many other fields, that bring ideas to life for companies that don't have the technical expertise to develop what they want.
With many companies tightening expenses, Accenture isn't growing as quickly. In Q2 of FY 2023 (ending Feb. 28), revenue only rose by 9% in local currency (Accenture is a global company based in Ireland) and gave weak guidance of 9% revenue growth for the entire year.
This trend caused Accenture's stock to tumble, taking its valuation with it.
ACN Price to Free Cash Flow data by YCharts
With the stock priced just below its long-term average, Accenture is sitting in a good place to buy now, especially since its free cash flow (FCF) is below its all-time high.
3. DigitalOcean
Cloud computing is a massively growing trend in the business space, and multiple leaders have emerged. However, small and medium-sized businesses often don't receive favorable pricing or the support they need to undertake such a massive transformation because the big tech companies focus on their most prominent clients. DigitalOcean (DOCN 0.06%) fills that gap as the cloud computing provider specializing in smaller clients.
This isn't a little opportunity, either; the International Data Corporation estimates the market opportunity for infrastructure as a service (IaaS) and platform as a service (PaaS) will grow at a 26% compound annual rate to reach a $195 billion market opportunity by 2026 for individuals and companies with fewer than 500 employees. With DigitalOcean's 2022 revenue of $576 million, it's got a massive runway to grow.
DigitalOcean is still a young company and isn't profitable. However, it is FCF positive and posted a strong 22% margin in Q4 while only producing a 13% margin throughout 2022 -- showing its margins are improving. These are likely permanent gains, too, as DigitalOcean guided for a 21% to 22% FCF margin for all of 2023. It also gave strong revenue guidance of 23% growth to $710 million.
Despite its success, the stock is trading at 6 times sales, an extremely low price to pay for a young and growing tech company. DigitalOcean is capturing a small corner of a vital market, and even though small and medium-sized businesses are unlikely to spend heavily on cloud computing in 2023, the long-term trends are in favor of this transition. That makes DigitalOcean an excellent stock to buy and hold for the next three to five years.
