Let’s talk about tech, and investing for the long-game. While the mega-cap tech giants soak up headlines and hype, the simple fact is that these companies have already climbed to the highest peak. If you want to find an investment that will be winning big five years from now, you’ll need to find the companies that are just starting to climb.
The tech sector is a rich field for such a search. Tech stocks are known for their innovation, and for holding a place at the cutting edge of today’s economy, and there are plenty of under-the-radar names out there that show potential for long-term outperformance. The only trick is finding them.
Covering the tech sector for Wedbush is analyst Moshe Katri, and he’s been digging into the details of some of the smaller tech names out there, aiming to find those ‘diamond in the rough’ stocks that will support a solid portfolio later.
Drawing insights from the TipRanks platform, let’s delve into two such tech stocks and find out why Katri says it’s time to hit buy.
Grid Dynamics Holdings (GDYN)
First up is a small-cap tech company, Grid Dynamics. This firm provides a range of services, all dedicated to enabling its clients to grow their businesses. This cloud-native firm was formed in 2006 and has been developing cloud technology solutions since before the term ‘cloud’ came into wide use. Grid offers a combination of consulting and engineering savvy, and crafts its solutions along a clear pathway: analytics, design, prototyping, implementation, culminating in running the product.
For the customers, that means that solutions are crafted to the problem or the situation, to fit the customer’s needs as they define them. For Grid, it means that its services are in demand, from major names such as Google, Verizon, and Tesla. The company’s services are available through a network of 25 offices across 13 countries, and Grid maintains a presence in such major business and financial hubs as New York and London, as well as setting up engineering facilities in up-and-coming hot spots in India.
On the financial side, Grid recently released its 1Q24 results. These showed total revenues of $79.8 million, a figure that was flat year-over-year, although up 2.2% from the previous quarter. At the bottom line, the company’s non-GAAP earnings came to $5.2 million, or 7 cents per share. This EPS was considered in line with the pre-release estimates.
For Katri, in laying out the Wedbush view on Grid, a key point is the high growth potential of the company’s various business lines. Katri is impressed with Grid’s strong positions in important verticals, and writes, “We believe the company’s outsized exposure to Retail (33.2% of CY23’s sales) and TMT (31.3%) verticals, which impacted growth in CY23, could be of help in CY24, as funding for new programs in these areas gradually improves. We believe the company is well positioned to post mid-single digit and mid, double-digit c/c revenue growth in CY24 and CY25, respectively, with expanding EBITDA margins.”
Katri also notes that Grid has a record of success in AI technology, which is going to define the tech world going forward, adding of the company, “Looking at AI, Grid has 7+ years of delivering enterprise-level AI solutions for world-leading companies across multiple industry verticals… GDYN has successfully implemented solutions involving customer intelligence, pricing and supply chain, IoT, product discovery, and risk management.”
All in all, the analyst puts an Outperform (Buy) recommendation on GDYN, and his price target of $13 implies a one-year upside potential of 36.5% for the stock. (To watch Katri’s track record, click here)
While there are only 4 recent analyst reviews on record for Grid Dynamics, they are all positive – making the Strong Buy consensus rating unanimous. The stock is selling for $9.53, and its $14.75 average target price suggests that a gain of 55% lies in wait for the coming year. (See GDYN stock forecast)
Toast (TOST)
Next up on our list of Wedbush tech picks is Toast, an interesting company that brings leading-edge tech into the kitchen. Specifically, Toast has developed a software platform optimized for the food service and restaurant industry, with features to streamline everything from inventory to point-of-sale to staff payroll. Toast’s insight was that food service has many of the same issues as retail, but adds to that matters of time-sensitive storage, high overhead due to expensive, power-intensive equipment (think refrigerated stock rooms), and the need to keep customers moving through the system. Toast’s platform is tailored to meet these industry-specific needs.
The benefits of the Toast platform come in the form of ‘friction-free’ operations at the user end, along with a fully scalable, cloud-based system that can adapt and grow to the individual end user’s specific requirements. Toast has found applications and acceptance with a range of food service providers, from neighborhood bakeries to craft breweries to corner food trucks to fine and casual dining to swanky hotel bars and even to factory-scaled food production facilities.
In its recent financial release covering 1Q24, Toast reported some impressive figures. The company’s total revenue was up nearly 32% year-over-year to almost $1.08 billion, beating the forecast by $40 million. The bottom line suffered a bit; the company ran a net loss by GAAP measures, of 15 cents per share, a loss that was 1 cent deeper than had been expected.
Three other metrics will show how Toast is experiencing rapid growth. As of March 31, the company’s annual recurring revenue, or ARR, was up 32% y/y to $1.3 billion. The company saw a 30% y/y increase in gross payment volume, to $34.7 billion. And, Toast saw its platform expand in use, to 112,000 total locations, up 32% year-over-year.
And with that background, it makes sense that Moshe Katri’s write-up of Toast’s stock for Wedbush is both short and sweet, coming down to a simple conclusion: “Given TOST’s robust location expansion in the U.S. (as well as nascent overseas success) and recent improvements in operating and financial metrics, we believe the company is well positioned to post 30% + YOY gross profit and adjusted EBITDA growth in CY24 and CY25, respectively.”
Katri complements these comments with an Outperform (Buy) rating, and he gives it a price target of $30 to point toward an upside of 36% on the one-year horizon.
That’s the bullish view. Wall Street generally isn’t quite that upbeat, although TOST shares do have a Moderate Buy consensus rating. This is based on 19 recent share reviews, breaking down to 8 Buys, 10 Holds, and 1 Sell. The stock is priced at $22.02 and its $26.75 average price target indicates room for 21.5% appreciation this coming year. (See TOST stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
