With innovations such as artificial intelligence taking the limelight, publicly traded technology enterprises have naturally accrued investor dollars. Still, a better approach may be to consider underappreciated tech stocks. Believe it or not, they do exist.
Fundamentally, the biggest advantage that these less-heralded companies enjoy is lowered expectations. The challenge with the usual suspects is that it’s possible the market has grown jaded with their brilliant performances. Therefore, they need something truly remarkable to excite the base.
Unfortunately, exceptional performances are by their very nature incredibly rare. On the flipside, few people are expecting anything out of these underappreciated tech stocks. Subsequently, they may offer superior prospects for robust returns.
PagerDuty (PD)
Based in San Francisco, California, PagerDuty (NYSE:PD) operates in the application software category. Per its public profile, the company engages in the operation of a digital operations management platform. Specifically, PagerDuty collects data and digital signals from almost any software-enabled system or device. It then leverages machine learning to process and predict pain points and accretive business opportunities.
It doesn’t get much airtime compared to your typical innovator, making it one of the underappreciated tech stocks. Nevertheless, over time, it could draw eyeballs. For example, PagerDuty carries a three-year revenue growth rate of 20.3%, beating out 74.42% of its peers. Notably, it carries a very high free cash flow (FCF) margin of 14.96%.
For the current fiscal year, analysts are looking at revenue of $472.27 million. If so, that would represent a 10.1% growth rate over last year’s tally of $430.7 million. Further, in fiscal 2025, sales could soar to $540.25 million, implying 13.9% growth from projected 2024 revenue. With the implied double-digit percentage growth over the next two years, PD is easily one of the underappreciated tech stocks.
MagnaChip (MX)
Working in the semiconductor field, MagnaChip (NYSE:MX) designs, manufactures and supplies analog and mixed-signal semiconductor platform solutions for various applications. They include communications, the Internet of Things, consumer electronics, computing, industrial and automotive. It specializes in “background” elements such as display solutions and timing controllers. While it’s not overly exciting, MagnaChip plays a key role in the broader tech ecosystem.
Admittedly, from an operational standpoint, MagnaChip could use some work. For example, its three-year revenue growth rate is pointed in the wrong direction. However, the company features a strong balance sheet, particularly a cash-to-debt ratio of 32.86X. That’s well above average for the underlying industry.
For the current fiscal year, covering experts aren’t expecting much. On the bottom line, the loss per share could expand to $1.18 from last year’s 55 cents in the red. Further, sales might only reach $235.9 million, up a modest 2.5%.
Still, for fiscal 2025, the top line could generate $288.6 million. If so, that would come out to 22.3% growth over projected fiscal 2024 revenue. Thus, it’s one of the underappreciated tech stocks to consider.
Cantaloupe (CTLP)
Falling under the information technology (IT) space, Cantaloupe (NASDAQ:CTLP) is a digital payments and software services firm. Per its corporate profile, Cantaloupe provides technology solutions for the so-called unattended retail market. It provides integrated services for payment processing, logistics and back-office management. Analysts dig the idea, rating CTLP a unanimous strong buy with a $10 average price target.
For a software company, Cantaloupe carries a three-year revenue growth rate of 9%, which is just above average. However, its FCF growth rate stand sat 53.3%, which is well within the sector’s top tier. Therefore, it justifies at least some consideration for underappreciated tech stocks.
For the current fiscal year, experts anticipate earnings per share to hit 15 cents. That’s noticeably above last year’s print of breakeven. On the top line, sales could rise to $274.3 million. That would turn out to be a 12.6% lift from 2023’s haul of $243.64 million if the forecast held true.
Additionally, fiscal 2025 revenue could jump to $316.61 million. Also, the blue-sky target stands at $320.14 million.
Identiv (INVE)
A security technology firm, Identiv (NASDAQ:INVE) provides secure identification and physical security solutions that secure data and physical places worldwide. According to its public profile, Identiv covers many important areas, such as protecting connected objects and information using radio-frequency identification embedded security protocols. Given the damages tied to unauthorized access, INVE could see a broader demand surge.
If so, that would make Identiv a top candidate for underappreciated tech stocks. Presently, the company could use some work on its financials. For example, its three-year revenue growth rate is only 1.4%, which is below the sector median of 3.3%. Also, it carries only middling strength in its balance sheet.
Sure enough, analysts aren’t looking for much this fiscal year. Loss per share could narrow to 22 cents, an improvement over last year’s 29-cent loss. Further, revenue might only rise 1.2% to $117.82 million. That’s hardly anything to write home about.
However, the red ink could whittle down to 8 cents by fiscal 2025. Further, consensus sales may swing to $128.35 million. Best of all, analysts peg shares a unanimous strong buy with an $8.75 average price target.
PowerSchool (PWSC)
Headquartered in Folsom, California, PowerSchool (NYSE:PWSC) operates in the application software field. Specifically, it offers cloud-based software to the K-12 education market in the U.S., Canada and other international markets. Its solution is embedded in school workflows, allowing for easy daily use by educat0ors, students, administrators and parents. With Covid-19 disrupting the academic cycle, PowerSchool could see tremendous growth.
Financially, one of the company’s vulnerabilities is that it doesn’t have the strongest balance sheet. For instance, its cash-to-debt ratio sits at only 0.05X, which is very low for the sector. On the plus side, PowerSchool’s three-year revenue growth rate stands at 14.6%, which is above average.
For fiscal 2024, covering experts believe EPS could reach 99 cents. That’s a solid improvement over last year’s result of 82 cents. By the following year, this metric could rise to $1.15, with a high-side target of $1.25.
On the top line, sales in 2024 could be $789.18 million, a 13.1% improvement from last year. Also, in 2025, the top line could rise again to $873.96 million, with a blue-sky target of $892.8 million. Given the relevance and the growth, it’s one of the underappreciated tech stocks to consider.
Shoals Technologies (SHLS)
Operating in the solar industry, Shoals Technologies (NASDAQ:SHLS) provides electrical balance of system (EBOS) solutions and components for solar, battery energy and electric vehicle charging applications. The company provides various solutions to help its clients leverage the power of renewable energy. However, it’s an extremely volatile idea, with shares down 42% on a year-to-date basis.
Still, the market appears to be overlooking many of the positives. For example, Shoals features a three-year revenue growth rate of 15.5%, above 70.13% of its peers. Even with that performance, SHLS trades at a forward earnings multiple of 14.88X, well below the sector median.
For fiscal 2024, experts believe that EPS will reach 60 cents, which is below last year’s print of 65 cents. However, in the following year, EPS could rise to 85 cents. On the top line, sales could hit $500.7 million later this year, which only represents a 2.4% growth rate. But wait around to 2025 and revenue could soar 26.4% to $632.89 million.
In addition, the blue-sky target calls for sales of $739.56 million. Based on the underlying potential, SHLS could be one of the underappreciated tech stocks.
SoundThinking (SSTI)
Let’s end this list of underappreciated tech stocks on a controversial but arguably pertinent company. SoundThinking (NASDAQ:SSTI) technically falls under the software application industry. Specifically, it provides a public safety technology, with its core product known as ShotSpotter. As the name suggests, the platform represents an outdoor gunshot detection, location and alerting system.
Part of the controversy centers on criticisms regarding ShotSpotter’s true effectiveness. Of course, any time you’re dealing with efforts to curb criminal activity, there are matters of social sensitivity that must be considered. Nevertheless, what works in SoundThinking’s favor is that something must be done to address the current gun violence problem.
For the current fiscal year, covering analysts believe the loss per share will improve to 18 cents. That’s better than last year’s print of 22 cents in the red. However, the spotlight is on the top line. Here, sales may fly up to $104.84 million, up 13.1% from last year’s tally of $92.72 million. And in the following year, sales could again expand to $114.55 million.
On the date of publication, Josh Enomoto 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.
