The normalization in demand following the easing of COVID-led restrictions, macro headwinds (including high inflation and rising interest rates), and valuation concerns amid fears of economic slowdown took a toll on Canadian stocks, especially from the tech sector.
While the persistently high inflation and economic uncertainty pose near-term challenges, the sharp decline in the prices of tech stocks makes them attractive on the valuation front, providing a solid opportunity for buying.
If you have a long-term view and plan to capitalize on the lower prices of technology stocks, consider investing in these dirt-cheap stocks that look compelling near the current levels.
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Lightspeed
Lightspeed (TSX:LSPD) stock is trading at a forward enterprise value-to-sales ratio of 1.2, which is incredibly cheap considering its historical average of approximately 15. While the stock is trading cheap, its solid organic sales and focus on achieving profitability support my bullish outlook.
Lightspeed offers cloud-based software that helps small- and medium-sized businesses to modernize their legacy payment systems and switch to omnichannel platforms. Thanks to the structural shift in selling models towards the digital channel, Lightspeed is poised to benefit from increased demand. Also, the company could witness higher adoption of its products and solutions, as retailers and restaurant operators start spending on modernizing their POS (point-of-sale) platform.
Another key catalyst is the company’s increased focus on the customer with higher high gross transaction volume (GTV). These customers can adopt Lightspeed’s multiple modules, resulting in lower churn, higher average revenue per user, and improved margins.
While the company benefits from its growing high-value customers, its focus on monetizing a bigger portion of its GTV through its payments solutions and driving cost efficiencies through streamlining its operations augur well for growth.
Overall, Lightspeed has strong fundamentals and will likely deliver solid capital gains. However, a weak macro environment could hurt consumers’ discretionary spending and, in turn, its transaction-based revenues in the short term. Thus, investors willing to hold the stock for a long time should invest in Lightspeed.
WELL Health
Shares of digital health company Well Health (TSX:WELL) are trading at a forward enterprise value-to-sales multiple of 2.4, which is significantly lower than its historical average of 13.8. This decline in its valuation seems unwarranted, as the company consistently delivered solid financial performances and profitable growth in 2022.
Investors dumped WELL Health stock on fears of a slowdown in demand. However, that didn’t happen. Instead, the macro weakness did not impact its performance, and the company benefitted from the higher omnichannel patient visits.
What’s worth noting is that its virtual services revenue is growing rapidly (largest revenue segment). This bodes well for future profitability. Notably, its virtual services business carries higher margins and has witnessed strong organic growth.
Looking ahead, I’m bullish on WELL Health stock. Its growing omnichannel patient visits, strength in the high-margin business, and strategic acquisitions position it well to deliver profitable growth. Meanwhile, its attractive valuation will likely support the upside in its stock.
