Finding cheap tech stocks isn't always easy, as many top tech investments involve flashy or new technologies. As a result, they are often hyped up, which creates a strong demand for the stock and pushes their price up. However, many investments haven't been subject to this buzz and make for great buys now.
If you're looking at adding a bit of tech exposure to your portfolio, here's a great list as a starting point.
1. CrowdStrike
CrowdStrike (CRWD +1.37%) is a top cybersecurity provider specializing in endpoint security. This type of security protects network access points like laptops or cloud workloads, but CrowdStrike also has a broader product suite than just that. With add-ons like identity threat protection, threat hunting, and malware search, CrowdStrike is becoming a one-stop shop for many cybersecurity needs. In fact, 63% of customers utilize five or more of its products, while 24% use at least seven.
CrowdStrike is also rapidly growing, with its annual recurring revenue (ARR) rising 37% to $2.93 billion in Q2 of FY 2024 (ending July 31). It also boasts a 26% free cash flow margin, showing it has achieved one profitability measure as it works toward sustained generally accepted accounting principles (GAAP) profitability (CrowdStrike posted an $8 million profit in Q2).
NASDAQ: CRWD
Key Data Points
As with all of these potential investments, when discussing if a stock is cheap, I'm referring to its valuation, not its stock price. While CrowdStrike may look a bit expensive at first glance, it trades at 15 times sales and 48 times free cash flow (FCF); when its growth is factored in, it appears much cheaper.
Wall Street analysts project CrowdStrike's FY 2025 revenue to be around $3.9 billion. Combine that with CrowdStrike's trailing-12-month FCF margin of 30%, and the stock trades at 10 times sales and 33 times FCF. Those are perfectly fine prices to pay for a stock that's growing at greater than 30%.
As a result, CrowdStrike looks like a strong stock to buy right now.
2. UiPath
UiPath (PATH 1.88%) gives its clients access to robotic process automation (RPA) software that can be used to automate tasks. It also has incredible artificial intelligence (AI) plug-ins that increase the use case of the platform. For example, UiPath can read a document, understand what it wants, and then fill out the information without human intervention.
This kind of potential excites investors about a practical AI application, but UiPath hasn't received the hype that many other companies have.
PATH PS Ratio data by YCharts
At just 8 times sales, investors might wonder why it's valued so low. With the business growing its ARR by 25% in Q2 of FY 2024 (ending July 31) and its FCF, it's not because the business is struggling. It also increased its large customer count (those spending more than $100,000 annually) by 16%, so it's seeing customer wins as well.
NYSE: PATH
Key Data Points
UiPath is a stock many investors haven't jumped back into, thanks to its massive decline since it went public in 2021. As a result, many investors don't have faith in the stock, which leaves an awesome opportunity to take a position today.
3. Amazon
While many would find it unthinkable to call Amazon (AMZN +0.26%) stock cheap, it is. Over the past few years, Amazon has slowly transitioned away from being a solely e-commerce business. With the rise of businesses like Amazon Web Services (AWS), third-party seller services, and advertising, its gross margin has drastically risen.
Gross margin is the profit left after subtracting the cost of goods sold, which is normally quite low for a commerce business. But because of the growth of higher-margin businesses, Amazon's gross margin is on the rise.
This normally translates to a higher valuation, but this hasn't happened.
AMZN PS Ratio data by YCharts
As a result, I think Amazon is drastically undervalued. Additionally, Jeff Bezos' successor, Andy Jassy, has been intensely focused on improving operating efficiency, which has also improved Amazon's profits.
Although Amazon is a large business, it grew at a respectable 11% pace in Q2. But the value story here isn't growth; it's improving margins. With the stock at a much lower valuation than in previous years, it looks like a great buying opportunity.
