3 Top Tech shares to buy in May

In 3 sentences:

  • The alphabet is growing, but a fall in the share price means that the company is trading at a reasonable valuation.
  • Wix is ​​a leading website service with a margin of 76% on its website subscription revenue.
  • Olo is a leading broker for on-demand and online delivery to restaurant chains.

2022 has so far been a tough year for technology investors. Of Nasdaq-100 has fallen around 20% so far this year, with many of the strongly traded stocks in the index having fallen more than 50%. Not easy when you own many of these past highs, as you have many unrealized losses and may have to wait for years for stock prices to recover.

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In return, those who want to buy shares now should rejoice at this fall. For it allows to buy more fast-growing technology stocks for cheap valuations.

Here are three top technology stocks that have experienced some price correction and may be a buy in May.

1 alphabet (Google)

alphabet (NASDAQ: GOOGL) is the parent company of Google Search, Google Maps, Android, YouTube, Google Cloud and many other companies. With a market value of $ 1.55 trillion. US dollars, it is one of the largest companies in the world. The stock has fallen 19.2% this year, partly because investors were disappointed with the result for the first quarter of 2022.

Now might be a good time to pick up some Alphabet shares. Why? Because the conglomerate is still growing fast and is now trading at a much more reasonable valuation. In the first quarter, total revenue increased by 23% year over year to $ 68 billion with an operating margin of 30%. The growth was primarily driven by Google search, which generated $ 39.6 billion in revenue during the period, an increase of 24% year over year. Google Cloud also grew rapidly with a 44% year-over-year increase to $ 5.8 billion.

Over the past 12 months, Alphabet has generated $ 69 billion in free cash flow. Compared to the market value of $ 1.55 trillion. In US dollars, this equates to a price-to-free cash flow (P / FCF) ratio of 22.5. And all the while, both Google Cloud and its Other Bets division are wasting billions of dollars annually on financing their operations. Once Google Cloud starts making a profit (probably within the next few years), and if its other divisions can produce more promising companies like Waymo’s autonomous drive, Alphabet’s free cash flow should grow even faster than revenue for the next many years. Therefore, I believe the stock is a buy at its current valuation.

2 wix

wix (WKN: A1W7AU) is a leading website builder that provides tools for conducting online business and is one of the smaller capital holdings. The stock has fallen as much as 53% this year and is now trading at a market value of $ 4.25 billion.

By the end of 2021, Wix had 6 million paying subscribers to its services. This equates to $ 1.01 billion in annual recurring revenue (ARR) from site subscriptions. Based on these earnings alone, the Wix share is traded at a price-to-sell (P / U) ratio of around 4.5. Although the company does not generate consistent earnings, with site subscription gross margins of 76%, a price-to-sales ratio of less than five looks pretty cheap.

Nor is it the case that this area is shrinking. ARR in the fourth quarter of 2021 increased 15% year over year and 43% compared to the two previous quarters, showing the consistent revenue growth that comes with a subscription model.

In addition to site subscriptions, Wix has branched out into e-commerce sites and payment services. This revenue is attributable to the Business Solutions segment, which grew 59% to $ 319.4 million in 2021. The segment currently has low gross margins of 20%. However, management expects margins to increase as the payment business scales.

Wix is ​​not profitable at the moment. However, given its stable growth, robust subscription earnings, high subscription gross margins and relatively low price-to-earnings multiple, the stock is attractive at these prices.

3 olo

ups (WKN: A2QRR1) is a recent listing that has fallen about 58% from its listing price set in March 2021. This currently puts the stock at a market value of $ 1.7 billion.

The company enables large restaurant chains to easily offer and facilitate online and delivery options to their customers. These include restaurants such as Five Guys, Cold Stone Creamery and Wingstop. By the end of 2021, Olo was serving 79,000 restaurants. Revenue rose 52% year-over-year to $ 149.4 million in 2021, with an operating margin of 14%. Olo is able to deliver positive operating profits and at the same time invest so heavily in growth because the company has the best gross margins in the class at around 80%.

Olo’s growth model is simple. It adds more restaurant / chain locations, while also rolling out more locations for new services like Olo Pay. With a massive supply of restaurant chains in the US and a delivery / online ecosystem becoming more complicated from year to year, it would not surprise me if Olo can continue to grow at high speeds for many years to come.

Management expects Olo to generate approximately $ 196 million in revenue by 2022, which is at the high end of guidance. With a current market value of $ 1.7 billion, the stock has a price-to-earnings ratio (P / E) of 8.7. Although the Olo stock is not quite cheap, even with a high gross margin, I still think it is a buy. At least if you are sure that the company can maintain its rapid revenue growth for the next many years.

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