Despite the stock market trading at all-time high levels, a lot of stocks struggled throughout the year and are hovering near their 52-week low. Small and mid-cap tech stocks got hit the worst as investors are worried about their high valuation and the effect of rising rates. However, we think some stocks are now trading at a compelling valuation that provides a favorable risk and reward ratio. The 3 stocks we like are RingCentral (RNG), Teladoc Health (TDOC), and Genius Sports (GENI).
RingCentral (RNG) is a SaaS (software-as-a-service) company that provides services that enable businesses to communicate, collaborate, and connect through different channels such as messages, videos, or phone calls. According to Gartner’s latest report, RingCentral is named a leader for united communication as a service. The stock is currently down almost 60% from its all-time high but its financials remain strong. The company’s revenue has been growing at a CAGR of 30% the last few years and is forecasted to continue its growth at a CAGR of around 20–30%. Unlike other mid-cap tech stocks, the company is already profitable and is growing its bottom line quickly. Their price-to-earnings ratio is forecasted to drop from 110 this year to 25 in 2025. Given RingCentral’s leadership position in the industry with strong fundamentals, the stock is very undervalued at the current price.
Teladoc Health (TDOC) is a SaaS (software-as-a-service) company that provides telehealth service to patients through its integrated platform. It offers different health plans for conditions such as mental illness, chronic condition management, primary care, and more. The company is currently the leader in whole-person virtual care. The stock dropped almost 70% from its all-time high last February but the company prospect hasn’t changed. Amid the pandemic, the demand for virtual healthcare skyrocketed, more and more patients are now starting to adapt to telehealth services. The trend will likely continue even after the pandemic as it provides a much smoother and efficient experience for patients. The company is forecasted to grow at a CAGR of around 25% for the next five years and their price to sales ratio is only 5.7 at the current price which is very cheap for a SaaS company. The stock is a buy at current levels as both the valuation and the prospect of the company remain attractive.
Genius Sports (GENI) is a technology company that provides sports data and infrastructure to the sports, sports betting, and sports media industries. The company partners include NFL, Premier League, Draftkings (DKNG), Fanduel, and more. It offers services such as collection and integration of data, risk management, fan engagement, and streaming solutions. The company completed a SPAC merger and went public last May. The stock hit an all-time high in late May and dropped almost 70% since then. The company is now trading at a very attractive valuation with a price to sales ratio of 4.4 while growing 30% year over year. The company is poised to grow as the sports and i-gaming industries are expanding quickly, more states are starting to legalize sports betting as well which will largely benefit the company. The future of Genius Sports is very exciting and the current price represents a great buying opportunity.
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