3 Cheap Tech Stocks to Buy Right Now

When people say a stock looks cheap, they could mean a few different things. Today, I’ll show you three examples of what people mean by “cheap stocks” in the tech sector, with one common quality – these stocks are affordable in a good way and should be on your short list for further research if you are in a stock buying mood.

Block: Modest valuation for a growth stock

Let’s start with Block (SQ 1.53%)a well-known financial services provider with a modern twist.

The stock has a market cap of $40.7 billion and trades at lofty valuation ratios such as 51 times trailing earnings and 75 times free cash flow. But those reports don’t tell the whole story, as Block is also a high-octane growth stock.

The company has grown its revenue at a compound annual growth rate (CAGR) of 51% over the past five years. Bottom line revenues were up 91% year over year. Your average analyst expects this earnings growth to be followed by a 28% CAGR over the next half decade. Credit card processors ca Visa (NYSE:V) or MasterCard (NYSE:MA) I can’t keep up with any of these growth rates. Even peer-to-peer digital payment services PayPal (NASDAQ: PYPL) looks slow by comparison.

And when you choose valuation metrics that factor expected growth into the equation, Block stock suddenly looks incredibly affordable. The stock is changing hands at 15 times forward earnings estimates. And its price-to-earnings-growth (PEG) ratio is a modest 0.81 — below PayPal’s 0.85 and much lower than Mastercard’s 1.9 or Visa’s 2.3. A value close to 1.0 indicates a reasonable valuation, and lower scores make the stock more affordable.

In other words, the rapid growth of Block’s business leaves many investors and analysts unfazed. Block shares give you exposure to innovative payment services and business tools, with a dash of cryptocurrency experience like the company owns. Bitcoin (CRYPTO: BTC) worth $470 million at today’s prices. The stock may seem expensive in terms of traditional valuation ratios, but it’s cheap when you factor in the tremendous growth of Block’s business.

Roku: Way down from previous ratings

Then there’s more Roku (ROKU 5.77%)a veteran of streaming media technology and services.

This stock is not on this list because of a low valuation ratio. Roku is currently unprofitable in terms of underlying earnings and operating income before taxes. Its free cash flow is back in the black after a dive into red-ink territory in 2022 and 2023, but Roku’s stock isn’t a bargain compared to its cash returns either.

So how did it end up on my list of low-priced tech stocks? You see, this stock is down 44% since last November and 87% from its all-time highs since July 2021. A price correction was probably needed from the previous peak, but this decline is going too far.

Roku is a leading name in a growing industry with a global business opportunity. It’s a big market with a lot of future expansion. More than 40% of potential users subscribe to streaming services in mature markets such as North America and Western Europe, according to Statista. Developing nations like Indonesia and India have not even crossed the 10% level. In other words, most of the world is still getting used to online streaming services, and Roku is benefiting as adoption of these services grows.

Meanwhile, Roku’s stock is rated an absolute disaster. Yes, profit figures are modest at best and negative in many cases, but the company is doing better over time. The upward trend should continue as Roku’s global footprint expands and the digital ad sector recovers from several years of inflation-laden doldrums. In a few years, it should make sense to talk about Roku’s earnings-based metrics again.

I mean, do these healthy financial lines belong on the same chart as Roku’s stock price crash? I don’t think I do:

ROKU Revenue (TTM) data by YCharts

So Roku may not be underpriced in most senses of the phrase, but I see it as a deeply misunderstood growth story that deserves a richer valuation. It could be years before it returns to the lofty heights of 2021, and that’s okay. Roku stock is a straight bet on the long-term future of streaming media services, and you don’t even have to pick a winning content platform.

SoundHound AI: A solid financial foundation

Finally, you should consider a voice control specialist SoundHound AI (SOUND -0.40%). With unique voice interpretation technology and a growing list of big-name clients, I’m looking at another long-term growth story that isn’t getting the love it deserves in the market.

Like Roku, SoundHound AI is currently unprofitable. Also, like Roku, this company offers stellar revenue growth. Final sales nearly tripled in two years. And it’s easy to miss how solid SoundHound AI’s financial foundation is.

Backlog of orders and future sales in subscription contracts currently stands at $723 million, up 113% year-over-year. That’s a lot of guaranteed revenue for a company that currently reports about $55 million in annual sales. And the backlog continues to skyrocket as the company adds more customers with long-term contracts.

In addition, SoundHound AI’s balance sheet is nearly debt-free, with $200 million in cash reserves.

I understand if you walk away after taking a look at SoundHound AI’s negative returns and increasing price-to-sales ratio. That might be a mistake, though. The stock is modestly priced when you factor in its generous (and growing) backlog, not to mention that steady balance sheet. This small company is poised to soar for the long haul.