Quantum computing expert IonQ (IONQ 6.73%) is on a roll. The stock has gained a market-thumping 324% over the last year for reasons of mixed long-term importance. Quantum computers are starting to look useful, and there's a real business brewing there for the long term.
But IonQ's investors may have jumped aboard its bandwagon too quickly, and the stock is now dangerously overvalued. IonQ stock is changing hands at 136 times the company's trailing revenues, and all of its profitability metrics are printed in red ink. Moreover, the quantum computing field is surprisingly full of competitors, many of which have more experience and deeper pockets than this market darling.
So I would recommend leaving IonQ's stock alone for the time being. The current market offers lots of better ways to put your investible money to work until this overheated ticker cools down a bit.
In particular, you should consider grabbing a few shares of the undervalued hypergrowth stories Fiverr International (FVRR +4.69%) and SoundHound AI (SOUN 2.82%) right now.
NASDAQ: SOUN
Key Data Points
SoundHound: Barking up the right tree
What started as a fun way to identify songs heard by your smartphone's microphones has evolved into a serious voice-control business. SoundHound has been around since 2005, but didn't enter the public stock market until 2022.
And the recently business-minded company is off to a strong start. Trailing revenues added up to $19.6 million in the summer of 2022, nearly doubling to $38.2 million in last month's third-quarter report. SoundHound provides custom voice control solutions for restaurants, contact centers, smart-home devices, gaming, and more.
If you find yourself talking to your car's infotainment system, there's a decent chance that you're interacting with the Houndify system. In that key market, SoundHound's customer list includes Dodge parent Stellantis (STLA 2.21%), Japanese giant Honda (HMC 4.00%), and German luxury-car titan Mercedes-Benz (MBGY.Y 2.68%), just to name a few. But you might not know it, because SoundHound's in-car solutions are customized for each specific client and wrapped in the carmaker's original branding.
SoundHound stands on the doorstep of tremendous business growth as the automotive customer list grows and the company leans into new target markets. The whole business rests on the voice-assist artificial intelligence (AI) lessons SoundHound learned from more than a decade of song-identification services. Revenues may look small, but the sales are pulled from a backlog of $342 million in long-term contracts.
Simply filling the existing orders will generate tons of value for investors who dare to buy SoundHound at today's low prices. On top of that, the company continues to seek new business in several ways. This little company runs a deceptively ambitious business, and I can't wait to see the stock eventually reflecting that long-term growth story.
Meanwhile, the stock has fallen 53% in six months, and the $551 million market cap is a poor fit for SoundHound's global growth prospects. All this means this undervalued growth stock looks like a much stronger buy than IonQ right now.
NYSE: FVRR
Key Data Points
Fiverr: The gig economy is here to stay
I have bought shares of freelance services specialist Fiverr twice in the last two years. The bargain-bin stock has started to recover, posting a 16% gain over the last month, but it still shows negative 52-week returns, and shares are trading for just 13 times forward earnings projections.
The company hasn't exactly disappointed investors recently, either. Fiverr has exceeded Wall Street's consensus earnings estimates in each of the last 11 reports. The average surprise over the last year works out to 36%.
And if you thought of Fiverr as a pure play on the coronavirus lockdowns, you've got another thing coming. Trailing revenues add up to $353 million today -- 86% above the tally when Fiverr's stock started to slide in the spring of 2021.
It's true that Fiverr's sales slowed down for a while, but that was more of a reaction to the inflation crisis than to the lack of COVID-19 lockdowns. And now that the global economy is getting back on its feet again, Fiverr's sales and free cash flow have followed suit:
FVRR Revenue (TTM) data by YCharts
The nature of work and careers is changing before our eyes. Fiverr is a leading provider of services for the gig economy era. These robust results you see today are only the beginning of a worldwide sea change, as online tools have barely scratched the surface of the gigantic freelance marketplace. By Fiverr's own estimates, its current annual revenues captured less than 1.5% of the available market for creative, technical, and professional services.
So if you're looking for an exciting growth market but aren't comfortable with SoundHound's as-yet unprofitable business model, Fiverr should suit you better. The company reported $3.3 million of unadjusted net profits in September's third-quarter update, and the cash profit margin stands at a robust 18%.
Again, IonQ looks like a risky bet next to Fiverr's proven success and positive profits. Hence, I highly recommend leaving IonQ alone and paying closer attention to Fiverr International these days.
