Let's talk about investing in tech stocks. You know, where the proverbial Wall Street runs through Silicon Valley, a lot of folks get hung up on a stock's share price, thinking it tells you how valuable the company is.
But here's the thing: looking at the price per share alone doesn't really tell you much. That can change with a simple stock split, for example -- neither adding nor removing value but dividing the company's stock-based ownership into a different number of shares.
What you really need to look at are things like the market cap -- that's the total worth of all shares in a company. It gives you a more useful picture, especially when you compare it to how big the market could potentially be (known as the total addressable market, or TAM).
Remember valuation multiples, like price-to-sales and price-to-earnings ratios. They're super helpful in determining whether a stock is a bargain or a bit too pricey.
Any one of these tools isn't all that helpful on its own, but they are powerful together. And the least important measurement of a stock's true value is, in my opinion, the basic share price. It's not hard to find low-priced stocks with great business prospects, in the tech sector or anywhere else.
So let me show you a couple of low-priced tech stocks with share prices below $20 but monumental long-term value for investors. These stocks look like no-brainer buys right now.
NYSE: TOST
Key Data Points
Toast: $17 per share
Restaurant management software expert Toast (TOST +0.02%) is my first low-priced pick today. Amid a 74% plunge in its stock price to roughly $17 per share, this stock stands out as a hidden gem for discerning investors right now. Don't worry about the low share price, by the way; Toast boasts a market cap of $9.0 billion with $3.6 billion in trailing sales. There is nothing small or modest about this innovative company.
Its integrated, cloud-based platform streamlines restaurant operations, promising to disrupt the restaurant management industry over time. The company's focus on aggressive growth has temporarily dipped its profits, which is why the stock prices dipped so low. This strategy includes a loss-leader approach in hardware sales and a tightly focused geographical expansion plan. Despite minor setbacks around transaction processing fees and challenges in scaling up to larger restaurant chains, Toast's significant growth in customer counts and top-line revenues indicates strong potential.
The company recently punched through the breakeven point to deliver positive free cash flows in the last two quarters, and its balance sheet holds no debt but $1.0 billion in cash reserves. It's not as risky as the modest stock price might have you believe. You can disregard the negative profits while Toast establishes a strong user base from coast to coast, then settle in for game-changing returns in the long run.
This low-priced stock is a great buy right now, particularly for investors looking beyond some thin bottom-line results.
NASDAQ: PLTR
Key Data Points
Palantir: $16 per share
Last year marked a significant milestone for data analytics company Palantir (PLTR 3.29%) with the release of its Artificial Intelligence Platform (AIP). The platform is empowering businesses to elevate their operations, from refining procurement processes to boosting online order efficiencies, all driven by advanced artificial intelligence (AI) analytics. This innovation has resonated strongly in the market, driving massive growth. Palantir's user base rose 34% year-over-year in the third quarter of 2023, but the number of AIP users nearly tripled from one quarter to the next.
Palantir's financial health is further underscored by its latest profit figures, with a remarkable turnaround to a net income of $73.4 million. That's a stark contrast to the previous year's loss of $124 million. Like Toast, this company holds a strong balance sheet, with $3.2 billion of cash reserves and zero long-term debt. With a $36.5 billion market cap and $2.1 billion in trailing revenue, it would take a lot to stop this AI-powered innovator in its tracks.
The stock isn't cheap despite its low single-stub price tag, trading at 17 times sales and 250 times earnings. You get what you pay for, though -- a robust growth story with a finger in the promising AI pie and tremendous business growth. The $16 share price might help you stomach those lofty valuation levels, but don't let that be the deciding factor. I think Palantir deserves consideration for its fundamental financial merits, especially for growth-oriented investors.
NASDAQ: SOUN
Key Data Points
SoundHound AI: $2 per share
Last but not least, let's take a look at SoundHound AI (SOUN 5.02%). This one comes close to penny-stock territory with a share price of $2 and a $460 million market cap. Unlike its low-priced cousins above, this company does carry $83 million of long-term debt on its balance sheet, paired with $96 million in cash equivalents.
This expert in AI-based audio analytics has been around for a long time, but its serious business ambitions are fresher. After finding a few automobile makers as early clients for its voice-control systems, SoundHound AI raised some cash in a SPAC-style stock market entrance and started pursuing greater financial goals.
That was just over two years ago, and the company has already come a long way. The target audience now includes voice-controlled restaurant operations (think phone orders and drive-through windows), call centers (with automated voice menus and AI-assisted live agents) and smart consumer electronics. Wherever you interact with a voice-driven computer system, you may very well be talking to SoundHound AI's Houndify platform.
The company is small and unprofitable so far but is growing quickly with several enormous target markets in its sights. I'll admit that this idea is a bit more risky than Toast or Palantir, given SoundHound AI's weaker financial platform and less certain growth trajectory, but its voice control products are world-class with an impressive client roster and I expect big things from this little company.
At worst -- and I really do see this as a second-rate exit ramp, even with a potentially generous buyout premium -- a larger tech company could acquire SoundHound AI to get an instant foothold in this exciting corner of the AI market. But ideally, SoundHound AI gets to grow into its breeches as a stand-alone business, making money for early investors for many years to come.
