An unprecedented tech-sector rally since the stock market's COVID-19-driven correction in March 2020 has stretched the valuations of most technology stocks. Many of these stocks are currently trading at near all-time highs and experts are comparing the current tech-stock rally to the dot-com bubble in 2000.
While the technology sector is expected to continue thriving even after COVID-19 is vanquished, it could be risky for investors to take positions in the top-performing tech stocks now considering their lofty valuations. Also, investors’ rotation away from pricey tech stocks to quality turnaround candidates in beaten-down sectors that may advance with an economic recovery, might drive a tech sell-off in the coming months. So, we think a prudent way to ride the continuing technology wave is to bet on relatively undervalued stocks in the sector.
Teradata Corporation (TDC), Verint Systems, Inc (VRNT), NetScout Systems, Inc. (NTCT), and NETGEAR, Inc. (NTGR) are examples of technology names that are seeing increasing demand for their innovative offerings but their stocks are trading at lower valuations than their peers.
Teradata Corporation (TDC)
TDC delivers marketing and analytics applications, data analytics platforms, and related services. The company has operations in the U.S. and internationally. TDC’s stock has gained 100.6% over the past year; its last closing price was $46.8.
TDC recently began offering a 30-day free trial with its Modern Cloud Data Analytics platform, which could help market the product to more enterprises. Its Vantage Now product is now available on the Google Cloud marketplace, which could lend it greater accessibility and visibility for the product.
In terms of its forward price/sales, TDC is trading at 3.11x, which is 27.9% lower than the industry average of 4.32x. TDC is expected to see revenue growth of 3.6% for the quarter ended March 31, 2021 and 2.7% in 2021. Its EPS is estimated to grow 18.3% in 2021 and at a rate of 19% per annum over the next five years.
TDC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary ratings system.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
TDC also has a Value rating of A and Momentum and Quality ratings of B. In the A-rated, 5-stock Technology – Storage industry, it is ranked #1.
In total, we rate TDC on eight different levels. Beyond what we stated above, we have also given TDC grades for Stability, Sentiment, and Growth. Get all the TDC ratings here.
Verint Systems, Inc (VRNT)
VRNT delivers actionable intelligence solutions and value-added services. The company has worldwide operations. VRNT’s stock has returned 72.3% over the past year and was last trading at $50.8.
VRNT recently partnered with 8x8, Inc. to provide integrated cloud solutions for organizations worldwide. The company also recently launched a new Engagement Data Management offering, which is the latest addition to its open cloud platform.
VRNT’s non-GAAP forward price/earnings ratio is currently 14.75x, which is 46.5% lower than the industry average 27.6x. Furthermore, in terms of forward price/sales, VRNT is trading at 2.58x, 40.3% lower than the industry average 4.32x. The company’s EPS is expected to rise 14% per annum over the next five years.
It’s no surprise that VRNT has an overall rating of B, which equates to Buy in our POWR Ratings system. VRNT has an A grade for Value. In the 60-stock Software- Business industry, it is ranked #3.
Click here to see the additional POWR Ratings for VRNT (Quality, Stability, Momentum, Growth, and Sentiment).
NetScout Systems, Inc. (NTCT)
NTCT develops, manufactures, and markets network and service assurance solutions. The company has operations in the U.S. and internationally. NTCT’s stock price has increased 9% over the past year, and last closed at $30.9.
NTCT recently unveiled its new cybersecurity forensics offering for Amazon Web Services. The company has also extended its multi-year agreement with Vodafone to provide real-time, end-to-end visibility through its InfiniStreamNG platform.
NTCT’s non-GAAP forward price/earnings of 18.86x is 31.6% lower than the industry average 27.56x. The company’s forward price/sales of 2.76x is 36.1% lower than the industry average 4.32x.
NTCT’s revenue is expected to grow 1.2% for the quarter ended June 2021 and 3.3% in 2022. The company’s EPS growth is expected to be 5.1% in 2021 and 1.78% per annum over the next five years.
The POWR Ratings are also high for NTCT because it has an Overall Rating of A, which translates to a Strong Buy. NTCT has an A grade for Value and Growth and Quality ratings of B. In the 80- stock Technology - Services industry, it is ranked #7.
Beyond what we stated above we also have given NTCT grades for Stability, Momentum, and Sentiment. Get all the NTCT ratings here.
NETGEAR, Inc. (NTGR)
NTGR manufactures, develops, and markets a variety of devices, such as IP security cameras, network attached storage, and home automation devices. The company has offices in some 25 countries. NTGR’s stock has gained 82.2% over the past year and closed at $42.1 yesterday.
NTGR recently launched a new wi-fi 6E product called the NIGHTHAWK RAXE500 Tri-Band Wi-fi Router. The router supports the new 6Ghz band, which helps accelerate internet connectivity. The company has also launched another mobile wireless solution through its NETGEAR® 4G LTE Modem (LM1200),which provides high-speed connectivity in the absence of broadband.
NTGR’s non-GAAP forward price/earnings of 12.99x is 52.9% lower than the industry average 27.56x. The company’s forward price/sales ratio of 0.95x is 78.1% lower than the industry average 4.32x.
The company is estimated to see a revenue growth of 38.4% for the quarter ended June 30, 2021 and 7.5% in 2021. NTGR’s EPS is expected to grow 12.5% in 2021 and 54.8% per annum over the next five years.
It’s no surprise that NTGR has an overall rating of B, which equates to Buy in our POWR Ratings system. NTGR has an A grade for both Growth and Value. In the B-rated, 57-stock Technology – Communication/Networking industry, it is ranked #6.
Click here to see the additional POWR Ratings for NTGR (Quality, Stability, Momentum, and Sentiment).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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TDC shares were trading at $47.16 per share on Thursday afternoon, up $0.36 (+0.77%). Year-to-date, TDC has gained 109.88%, versus a 4.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks.
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