Advanced voice controls may be the future of many different industries, from home electronics and in-car systems to call centers and healthcare. Leading technology developer SoundHound AI (SOUN 1.83%) clearly has a bright future ahead of it.
At the same time, SoundHound AI has been a meme stock recently. The stock price is inflated by a small group of enthusiastic investors, organized in social media channels and hoping to unlock profits from a huge short squeeze. As much as I love SoundHound AI's long-term business prospects, the stock is incredibly overvalued right now, and I won't be a buyer until that situation is corrected.
Game-changing business news could do the trick, as could a sharp price correction. Until further notice, I'd take this stock seriously again at mid-single-digit prices, down from $15.60 per share on Jan. 21.
So you certainly shouldn't forget about SoundHound AI, but please put this stock on your back burner for a while. If you're looking for an undervalued growth stock that should deliver big gains from a more appealing starting price, you should consider this pair of top-notch tech stocks.
NYSE: TOST
Key Data Points
Toast is more than just breakfast
Let's start with a SoundHound AI partner. Toast (TOST 1.98%) provides cloud-based software that helps restaurant managers run their business. This integrated system replaces a patchwork of separate solutions, where every part of the Toast platform is available to the other functions.
For example, soaring sales of hot chocolate with marshmallows plus low cocoa mix inventories can result in timely ingredient orders, successful marketing ideas, and the right staff schedule to support this unexpected surge. Toast's platform takes the guesswork out of complex situations.
Sure, you could do the same job with more traditional tools. But you'd end up with one service provider for payroll and scheduling, another managing credit card payments, a third to run your marketing programs, and a paper notebook for tracking inventories. Toast does it all, whether you're running a single location or a nationwide chain.
Toast isn't everywhere quite yet. The company runs a tightly focused expansion campaign, focusing its resources on specific target markets until it has built a helpful buzz of positive word-of-mouth momentum. If you build a great service, happy customers will come, and then the growth momentum will keep going when Toast moves its focus to the next metro area.
Also, the company appeals to small and medium-sized businesses by offering credit card readers, order-taking tablets, and other hardware at cost. A low price of installation helps clients with modest management budgets try this new system out.
If you see a lot of Toast hardware in local eateries, your town probably already got the targeted expansion treatment. Some of the company's largest customers are already nationwide or even global, including Caribou Coffee and Radisson hotel parent Choice Hotels International. Uber Eats has been an integrated part of the Toast experience since 2021, and the SoundHound AI for Restaurants voice assistant is available to any Toast-powered restaurant.
Toast's stock has gained 121% over the last year, but it still trades at just 4.7 times trailing sales. That's a bargain next to SoundHound AI's 86 times sales, and well below the 9.2 price-to-sales ratio in the software industry as a whole. In my eyes, Toast is a much better buy than SoundHound AI right now.
NASDAQ: ROKU
Key Data Points
Roku's unappreciated streaming empire
Don't forget about Roku (ROKU +2.43%).
Toast and SoundHound AI are in earlier innings of their massive growth potential, but Roku also has a ton of untapped potential ahead of it. And the stock is not getting the investor respect it deserves.
You've seen Roku's logo on nearly half of the smart TV sets and media-streaming devices at your local big-box store. The company holds a dominant market share in North America, and its international expansion is just getting started.
The company served 90 million streaming households in early January, up from 85.5 million three months earlier. There's real momentum behind Roku's business growth. Roku's revenues tend to rise a bit faster than its household counts, followed by even quicker gross profit gains. The bottom line is still showing negative figures, but has been moving closer to breakeven since fall 2023.
This company was swept up in the digital advertising downturn of 2022. The inflation crisis led to lower marketing budgets everywhere, because it made no sense to launch lavish ad campaigns when nobody is ready to buy the stuff you're selling.
But the inflation crunch is over, the painful economic policies that led to its demise are rolling back, and the consumer market is going back to normal again. Roku stands to benefit massively from a refreshed advertising market, arguably removing the last reasonable argument from the bearish side of its stock analysis.
This stock has traded sideways over the last year, missing out on a general market surge. It's also down more than 50% from its three-year highs, trading at the bargain-bin valuation of 3 times sales.
Roku is a former market darling, and Wall Street can be slow to forgive past sins of overvaluation. But the business keeps growing, the profits are coming, and Roku is pursuing a massive global media market. I doubled down on my Roku position the other week, using funds I gained from selling half of my SoundHound AI position in December.
I'll get back to the voice controls expert someday, but at a better price. For now, I can't stop buying a far more affordable growth stock named Roku.
