Not every tech stock in the market has a premium valuation, as some companies are downright bargains. These are the ones investors should consider as other stocks' valuation skyrockets.
Three that look cheap and could be considered to purchase right now are Amazon (AMZN 3.43%), Match Group (MTCH 0.63%), and DocuSign (DOCU -0.26%). Read on to find out why this trio is attractive right now.
1. Amazon
For most of its public life, Amazon has been called overvalued. However, I don't believe that's the case anymore.
Amazon's gross margins have significantly improved due to a rise in high-margin businesses like advertising, third-party seller services, and AWS. Because Amazon is still building out these segments, its profit margin hasn't benefited from the improvement, but it will once the company reaches a point where it can achieve max profitability.
Still, the stock trades at a valuation level similar to 2016, when its gross margins were nearly half of what they are now.
AMZN P/S Ratio data by YCharts.
Amazon's stock has seen a strong run-up in 2023, thanks to a resurgence in tech investing plus efficiency improvements within its business. However, the stock is nowhere near where it used to be valued at.
Should CEO Andy Jassy and company continue making the improvements they already have, then Amazon's stock has plenty of more room to run.
2. Match Group
Advertising is one of the first areas to see spending reduction when an economic downturn looms. This hurts companies involved in the space, like Match Group. The worldwide leader in online dating apps saw its revenue fall 1.5% in the first quarter, with its flagship product Tinder showing no growth.
Furthermore, the number of payers (the group of people who subscribe to various Match Group add-ons) fell by nearly 3%.
So if revenue is flat and payers are falling, what is there to like about Match Group stock? The future is still bright.
Online dating has become one of the most popular ways to meet a significant other, and the downturn is likely temporary. While Wall Street analysts only expect 5% growth this year, that more than doubles to 12% in 2024.
The stock is also trading at a cheap price, 17 times forward earnings. Match Group has a ways to go before its turnaround is complete, but it still should be considered as its dominant market position and cheap price make it an intriguing stock.
3. DocuSign
DocuSign was all the rage during 2020 and 2021 when documents had to be signed virtually. It was so convenient that most customers who adopted it stuck with it even though it wasn't completely necessary. However, now that DocuSign's primary growth catalyst is gone, many investors are wondering how much room the business has left to grow.
In Q1 of fiscal year 2024 (ended April 30), DocuSign saw 12% revenue growth -- a far cry from the 25% it experienced last year. It's also seeing relatively low expansion from existing customers, as it posted a 105% net retention rate, which means existing customers only spend $105 for every $100 they spent last year.
This means new customers have to drive the bulk of revenue growth, and with few companies wanting to adopt a "nice-to-have" product in the face of a potential economic downturn, DocuSign is struggling. However, I believe this is a temporary problem. Once clients are willing to spend again, DocuSign can attempt to upgrade clients to more products like automated workflows, agreement generation, and contract lifecycle management.
Furthermore, you can pay a relatively low price for the stock, with it trading at bargain price-to-sales and price-to-free-cash-flow valuations.
DOCU P/S Ratio data by YCharts.
DocuSign isn't out of the woods yet, but it has a strong base offering to get more clients to adopt additional products.
