The Nasdaq may have reached a turning point. In the five trading sessions during the third week in April, the Nasdaq Composite dropped almost 6% and Nvidia fell 14%.
The good news is that pullback was more likely a healthy correction than a sign of a permanent decline. That makes more tech stocks a buy. With the lower share prices and many tech stocks showing signs of a resurgence, it may be an excellent time to buy these three stocks.
DigitalOcean
DigitalOcean (DOCN 10.22%) is a cloud infrastructure provider oriented toward small and medium-sized businesses. With DigitalOcean's market cap of under $3 billion, massive competitors like Amazon and Microsoft tend to overshadow it.
However, DigitalOcean offers two things that its mega-tech peers cannot without undermining their business models -- pricing transparency and its DigitalOcean community.
The posted pricing means small businesses buy only the services they need, saving money for clients that often have tight budgets. Additionally, the community provides customers with documentation and access to other DigitalOcean customers. Hence, clients who cannot afford a full-fledged IT department can rely on this network to help solve problems.
Admittedly, DigitalOcean faced unique struggles. Small businesses fail more often than larger enterprises, leading to more turnover. Also, the stock fell last year after the company announced a CEO change. While that created uncertainty, Paddy Srinivasan brings years of SaaS leadership experience that could reinvigorate the company.
Despite its challenges, its growth is robust. DigitalOcean reported $693 million in revenue in 2023, 20% more than the previous year. It also earned $19 million in net income in 2023, better than its $28 million loss in the previous year.
Although its newly profitable status leaves it with a high P/E ratio, its forward P/E comes in at just 20. Given that bargain valuation, its competitive niche and the growing need for cloud services could lead to outsized returns as it fosters its continued expansion.
Sea Limited
Sea Limited (SE -1.64%) is a Southeast Asian conglomerate specializing in gaming, e-commerce, and fintech. Amid e-commerce leadership in Southeast Asia, its popular mobile game Free Fire, and a fast-growing fintech segment, the stock boomed in the 2021 bull market.
Nonetheless, as stocks began to turn downward in late 2021, problems mounted for the company. A ban on Free Fire in India, failed market entries outside of Southeast Asia, and competition with TikTok are among its many challenges.
However, Free Fire is close to returning to India as it addresses security concerns. Moreover, outside of a continued presence in Brazil, Shopee's e-commerce arm primarily focused on its core region of Southeast Asia, investing heavily in logistics in this area.
The current stock price is approximately 80% below its all-time high, and it may be closer to a financial recovery than some might think. Although its $13 billion in revenue for 2023 grew by only 5%, struggles in the gaming segment Garena overshadowed Sea's e-commerce and fintech successes.
Additionally, its $163 million in profit was its first annual profit. Analysts believe the improvements will continue, as they predict 116% earnings growth this year and a 163% increase in 2025.
Sea is unlikely to sustain triple-digit profit growth in the long run. However, with a rapid growth rate for two of its three segments and a forward P/E of 37, investors might want to consider Sea Limited while it is still a bargain.
Shopify
Shopify (SHOP -5.62%) prospered in the e-commerce space by allowing merchants to sell without depending on the Amazons of the world. Although many companies offer e-commerce platforms, Shopify stands out with its easy-to-use, customizable platform.
Additionally, an extensive ecosystem that includes payments, inventory management, email marketing, and many other functions helps it support an estimated 10% of all e-commerce transactions.
Admittedly, it may have taken its ecosystem expansion too far when it attempted to go into the logistics business, a move that returned the company to net losses. Still, Shopify since reversed course and sold that business, allowing it to return to profitability.
For 2023, revenue of just under $7.1 billion rose 26% from 2022 as the company continued attracting more merchants to its platform. Also, despite a $1.3 billion impairment charge from the sale of the logistics business, Shopify still earned $152 million in comprehensive income for the year, well above the $3.5 billion loss in 2022.
Looking forward, Shopify expects revenue growth at a low 20s percentage rate, likely leading to a considerable profit increase. Indeed, the 69 forward P/E may seem pricey, and the high valuation may have led to its sell-off in recent weeks.
Nonetheless, the five-year average for its forward earnings multiple is 85. That alone is a testament to the optimism about Shopify's future and could make now an opportune time to add shares.
