The recent sell-off in tech stocks has left many high-quality names trading at sizable discounts. For long-term investors, this presents an intriguing opportunity to position one’s portfolio for the next bull market. In this article, I’ve identified three tech stocks that appear particularly undervalued relative to their massive growth potential over the next decade.
These companies operate in large addressable markets, showcasing disruptive technology that could provide impressive growth for years to come. As interest rates close in on their peak, headwinds should shift to tailwinds for these high-growth tech stocks.
I believe the following three tech stocks could realistically deliver 1,000%-plus returns over the next decade. Allocating a portion of your portfolio amongst the three stocks today could provide investors with multi-bagger returns down the road. Even smaller investments hold the potential for life-changing wealth compounding.
With that said, let’s dive in!
Semler Scientific (SMLR)
Recent market volatility has beaten down growth names across the board. As investors flee to safety in bear markets, even high-quality growth stocks can experience indiscriminate selling pressure. However, with Semler Scientific (NASDAQ:SMLR) down more than 75% from peak levels, this could be among the best tech stocks worth considering. My take is that this selloff is likely a massive overreaction, given this innovative health-tech player still has immense earnings growth potential. Thus, the stock’s current levels represent an ideal entry point before this hidden gem gets discovered.
At first glance, Semler Scientific seems like a typical medical technology business. It develops, manufactures, and markets patented products that identify people at risk for cardiovascular disease. Yet, labeling this company as just a healthcare stock would be shortsighted. What sets Semler apart is how heavily it utilizes software in its offerings. This model provides tremendous efficiency and scalability, once fully built out.
The company’s value proposition clearly resonates with the market. Revenues are on pace to climb nearly 20% in 2023 to $68 million. More impressively, Semler produces tremendous cash flow from these sales, as overhead costs remain light. The company’s net profit margins sit at 34% given its minimal salesforce. That’s true software economics. On top of that, Semler’s earnings per share are expected to grow nearly 50% this year.
I think that forward guidance looks conservative, judging by Semler’s recent performance. The company has now beaten earnings estimates for six straight quarters, with the latest quarterly beat approximating a whopping 40%. Moreover, Semler has surpassed top-line projections for four quarters running, including a 7.3% revenue surprise last period. This consistent ability to exceed forecasts demonstrates that Wall Street still underestimates Semler’s growth trajectory.
My view is that Semler deserves a higher earnings multiple reflective of its high margins and reliable growth. At a current valuation of around 14-times forward earnings, Semler trades at quite the discount to other health tech software companies. Expanding that multiple closer to software peers would translate to 40% to 60% near-term upside. Over the long-run, continued earnings beats could very reasonably result in the stock seeing a multi-fold rise. After all, the $56 million in net cash on Semler’s balance sheet (and practically no debt) provides an ample buffer against volatility.
Riot Platforms (RIOT)
I rarely discuss crypto mining stocks, given most readers likely prefer traditional equities or the underlying cryptocurrencies themselves. However, Riot Platforms (NASDAQ:RIOT) merits attention at present, with Bitcoin (BTC-USD) approaching its scheduled halving event next year. At current prices, RIOT stock offers explosive upside potential over the coming years if Bitcoin behaves as it has after past halvings.
For background, Bitcoin’s protocol undergoes a halving roughly every four years. This cuts block rewards issued to miners in half instantly. The last halving event occurred in May 2020, reducing rewards per block from 12.5 BTC to 6.25 BTC. Historically, these upcoming halving events tend to drive a supply-demand imbalance and propel Bitcoin’s price substantially higher in the months that follow, before retracting.
The next halving is slated to come around April 2024 and will reduce block payouts further to 3.125 BTC. If the established boom-bust pattern repeats, Bitcoin seems poised for another impulsive price surge next year. As the leading publicly-traded crypto miner by hash rate and Bitcoin holdings, Riot stands well-positioned to capitalize on this potential rally.
Critically, Bitcoin miners like Riot prepare years in advance to maintain profitability post-halving. Miners can effectively dollar-cost average into the next cycle by stockpiling Bitcoin reserves and upgrading their efficiency. Currently, Riot holds a massive trove of 7,327 Bitcoins worth nearly $275 million.
Additionally, Riot spent 2023 investing heavily to expand capacity and lower expenses. This allowed Riot’s year-to-date cash mining cost per Bitcoin to average $5,537 thus far. With Bitcoin trading around $37,000 today, that still provides strong per-coin profitability. This, combined with sizable cash pile, also offers Riot financial flexibility entering the volatile halving period.
Of course, direct Bitcoin investment carries risks if the crypto winter resumes. However, Riot looks to be well-insulated, given its cheap legacy production costs and sufficient liquidity. As history shows, if Bitcoin does spike post-halving, a rally back toward $60,000 highs could generate multi-bagger returns from Riot’s current valuation. For opportunistic investors open to some risk, RIOT stock undoubtedly looks like a high-reward option worth considering as a hold, at least over the next 12-24 months.
Terran Orbital (LLAP)
Innovation often happens in unexpected places. Terran Orbital (NYSE:LLAP) represents an under-the-radar microcap disrupting one of the world’s more exclusive industries – aerospace and defense. Despite extreme share price volatility since its special purpose acquisition company (SPAC) merger, Terran Orbital maintains key advantages which are likely to drive outstanding growth in the years ahead. The company’s current $150 million valuation leaves sizable upside for investors, if the company’s execution matches its vision.
As background, Terran Orbital manufactures small satellites primarily for U.S. government and defense applications. Though best known for its high-profile NASA and Space Force contracts, Terran Orbital makes most of its revenue serving private space needs. Its unique advantage comes through specializing in smaller satellites customized per each client’s needs.
Demand for this niche seems enormous. Last year, companies and governments launched over 2,300 satellites globally as space commercialization expands. Yet, while satellites get smaller, their capabilities and technological needs only deepen. Those are ideal factors, considering Terran’s expertise. Its mastery in providing early Space Force LEO prototypes or NASA’s cutting-edge lunar ice mapping equipment demonstrates its proficiency in adapting to complex, bespoke requests.
Supporting its growth, Terran holds a massive $2.6 billion order backlog currently, equating to thousands of future satellite builds. Management expects to convert 80% of this backlog (more than $2 billion) into recognizable revenue by the end of 2025. Meeting that pace likely means eclipsing $1 billion in annual sales in just three years. Notably, Terran Orbital is already nearing profitability right now, ignoring this large backlog.
This setup shares similarities with early-stage hypergrowth stories like space tourism pioneer Virgin Galactic (NYSE:SPCE). However, Terran Orbital trades a fraction of still-very-unprofitable Virgin Galactic’s $800 million market cap. If Terran meets its lofty revenue goals over the next three years, I expect its valuation will rise multiples above today’s prices.
Admittedly, plenty of risks exist. And should management execution falter on seismic production scale-up, there’s plenty of downside potential with this stock as well.
Still, Terran Orbital possesses vital competitive advantages (sector expertise, strong customer relationships, and specialized manufacturing), which are tough to replicate for competitors. Given the company’s discounted valuation multiple, I think plenty of upside exists with LLAP stock. Wall Street analysts agree, seeing 283% upside over the next year.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
