3 cheap technology stocks to buy now

The broader market may be declining, but some sectors are doing worse than others. Technical stocks seem to be feeling the most pain at the moment with some stocks down more than 50% over a relatively short time frame. Something to remember about the current situation is that many of the big companies are being sold heavily just because of their connection to the technology sector. This means that long-term investors can find some great deals by sifting through the carnage of unfairly investing in some of the defeated tech stocks.

There are three good stocks to buy now are Shopify (store 13.85%)And Twilio (TWLO 11.66%)And PayPal Collectibles (PYPL 6.11%). This trio was amplified during the pandemic, but collapsed when their business began to return to normal. The market has been over-corrected severely and this could be an excellent time to get in for long-term investors.

Image source: Getty Images.

1. Shopify

Shopify tools allow businesses of all sizes to launch an e-commerce site. With Shopify, businesses can process credit card payments, sell internationally, and access Shopify’s own fulfillment network, allowing their customers to compete with e-commerce giants in product delivery speed.

Shopify’s stock price is down 80% to around $330 a share. That low was last traded before the pandemic, despite its huge trading gains in the past two years or more. This indicates that the stock is an excellent value now.

Shopify revenue grew 22% year over year last quarter and gross merchandise volume (GMV) increased 16%. While this was a slowdown from the growth numbers in 2021, management quickly pointed to a two-year compound annual growth rate of 60% (revenue) and 57% (GMV). None of the business gains from the pandemic — and most of them permanent — have been priced into inventory.

Valued at just nine times in sales, Shopify hasn’t seen a rating this low since 2016. With management forecasting faster growth later in the year (as if 22% wasn’t fast enough), Shopify is still on the right track. The arrow will eventually follow suit.

Someone selling an item online.

Image source: Getty Images.

2- Twilio

More than 268,000 entities use Twilio’s APIs (Application Program Interfaces) to communicate with customers, clients, and/or patients. Twilio does complex programming for its clients, so non-software engineers can use it to set up basic communication tasks like confirming appointments through text messages or sending marketing emails.

Similar to Shopify, Twilio’s tools are sticky, and customers stay with Twilio simply because it’s hard to leave once set up. This retention has resulted in a dollar-based net expansion rate of more than 125% per quarter since the first quarter of 2020. With every customer who stayed with Twilio now spending at least $1.25 per $1.00 last year, the company is consistently running to increase its revenue.

This growth rate is not just an abnormal quarter; CEO and Co-Founder Jeff Lawson reiterated his confidence that Twilio will achieve organic growth of 30% or more each year through 2024. It backed that promise in the first quarter with annual growth of up to 35%, though second-quarter growth is expected to be around 28%. This promise is an annual forecast, so Twilio will still be able to deliver.

In another parallel Shopify, Twilio stock is down nearly 80% and is at a price point that – you guessed it – was last reached before the pandemic. The market did not take into account the future growth of Twilio or its massive pandemic gains; Wise investors will take advantage of this opportunity.

3. PayPal Collectibles

Perhaps the most famous of these three stocks, PayPal offers peer-to-peer, online, and in-person payment options. From the first quarter of 2020 to the first quarter of 2022, PayPal added more than 100 million active accounts to reach 429 million accounts currently.

PayPal stock has the worst feeling of the three, dropping below $80, the bottom line reached in 2018. It’s hard to imagine PayPal in worse shape now than it was four years ago, but that’s the current thinking of the market .

When evaluated from a price-to-earnings (P/E) perspective (both ex-post and forward earnings), PayPal has never been cheap as a public company by a wide margin.

PYPL Chart (Forward)

PYPL PE ratio data (forward) by YCharts

This assessment comes despite management forecasting revenue growth of 12% for the full year. For the first quarter, PayPal beat revenue expectations by 1 percentage point with 7% growth and beat estimates of non-GAAP earnings per share by $0.01. But, unfortunately, it also had to cut revenue guidance to the previously mentioned 12% from 15%.

PayPal has more business than Shopify or Twilio to get back on track, but it has a strong comeback potential. With CEO Dan Schulman expecting EPS to grow in its mid-teens next year, investors who keep it going will be rewarded.

Three options to consider

These three stocks are undervalued and burned by the market. I have no idea when the tech sale will end or when the market will recover. However, with the business funnels of Shopify, Twilio, and PayPal, I’m confident that all of them will command a much higher share price three to five years into the future.

Almost no one can perfectly time the bottom; Investors looking to establish a position in any of these stocks should back out slowly. Doing so will avoid being tied to a single entry price and could get better prices if selling continues.

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