Looking for profitable and fast growing technology stocks? Profitable technology stocks are not that hard to find anymore, although the majority of them have heavy losses due to their growth orientation. This strategy is not necessarily a disadvantage as long as reasonable profitability is achieved in addition to significantly higher sales in the future.
Nevertheless, it is significantly less risky to bet on shares that already have a good profitability situation. However, the biggest problem could be the high valuation, because investors usually also give high prices to profitable and at the same time fast-growing companies.
When you look at shares that have experienced high growth in the past few years, but which at the same time have cheap valuations, companies such as PayPal (WKN: A14R7U) or alphabet (WKN: A14Y6F) identify.
PayPal is a fintech right from the start. In retrospect, the stock delivered fantastic returns to its investors. Since the spin-off in 2015, the former eBay subsidiary has generated an average annual return of around 13.5% over the past seven years.
Meanwhile, you could get a lot more out of the stock: at peak times, a share warrant paid more than US$300 a year ago. The average return at the time: 42.2% per year!
Due to the strong share correction (price minus over a year: 67%), the PayPal share can now be bought quite cheaply again. The expected price-to-earnings ratio is currently just under 23 (as of 8/3/22, Reuters).
The cheap valuation may also have persuaded activist investor Elliott Management to build a larger position in fintech. The investment company put about two billion US dollars by PayPal tycoon Paul Singer.
Alphabet stock has also recovered significantly and is now buyable again for around US$115 following a stock split. Seen over a year, the price drop here is only around 15%. That’s notable, as many other tech stocks fell more sharply.
Over the long term, however, Alphabet’s stock performance remains terrific. Since Google’s IPO in 2004, the stock has generated an average annual return of 23.7%.
The adjusted price-to-earnings ratio is around 20, with growth rates of more than 24% over the past five years (as of 8/3/22, Reuters).
Alphabet looks to defy the current weaknesses of some of its competitors in the online advertising market. So you stayed second quarter of 2022 still had a respectable 13% increase in sales to just under 70bn. The cloud business, which is still in the red, developed particularly strongly with a sales increase of almost 36%.
The ad network for the Google search engine and the YouTube video platform delivered stable revenues. Operating income of $22.7 billion was achieved here in the second quarter of 2022, which was roughly in line with the previous year’s level.
Promising technology bets are cross-financed with the highly profitable core business. They weighed operating income in the second quarter of 2022 at about $1.7 billion.
Article 2 Profitable and Fast Growing Technology Stocks at a Great Price! first appeared on The Motley Fool Germany.
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Frank Seehawer owns shares in PayPal and Alphabet. Suzanne Frey is an executive at Alphabet and sits on The Motley Fool’s board of directors. The Motley Fool owns shares of stock in and recommends Alphabet (A & C shares) and PayPal.
Motley Fool Germany 2022