2 Technology Stocks Analysts Predict Will Soar Over 100%
The technology sector is composed of companies that create products and services in software, electronics, communication, artificial intelligence, and other IT-related industries. According to Forrester, the US tech market is expected to grow by 7.4% in 2021 and 6.7% in 2022.
The tech sector makes for attractive investments as made evident by the Technology Select Sector SPDR ETF (XLK) returning a 28.8% gain since the beginning of 2021.
In today’s article, I am going to analyze two promising technology stocks expected to rally by 100% in the near term: AcuityAds Holdings Inc. (ATY) and 2U, Inc. (TWOU). As analysts set their lofty rally hopes, it could be a great opportunity to add these stocks to your portfolio now.
AcuityAds Holdings Inc. (ATY)
Headquartered in Toronto, Canada, AcuityAds Holdings Inc. is a technology company that offers digital media solutions. The company enables its customers to connect with their audience through different channels, including online display, video, social, and mobile campaigns. Advertisers can also manage their purchases in real-time using ATY’s programmatic marketing platform.
Shares of AcuityAds Holdings are down 61.5% year-to-date (YTD), substantially underperforming its benchmark and the broader market.
Financial Overview & Analyst’s Estimates
AcuityAds Holdings has recently reported earnings for its third quarter of 2021, and although the company topped Wall Street consensus, its shares have fallen by more than 11% after lower-than-expected top and bottom-line growth. In my opinion, it was an overreaction. The company may have not demonstrated stellar growth in Q3, its fundamentals are rather good. So let’s dive deeper into it.
In Q3, the company’s total revenue grew 5.4% year-over-year to $27.5 million. Also, ATY topped the Wall Street revenue estimates by $2.14 million. AcuityAds reported a GAAP EPS of $0.06 beating analysts’ consensus by $0.04.
The company’s Adjusted EBITDA increased to $4.4 million, representing modest year-over-year growth of 9.5%. Its liquidity position was also significantly improved in Q3, with $100.3 million in cash and cash equivalents on hand versus $22.6 million as of December 31, 2020.
We can see that the company improved its key operating metrics in its most recent quarter, however, AcuityAds Holdings trades with lofty valuations even after the post-earnings sell-off. Its FWD P/S of 2.60x is 54.07% higher than the sector’s median of 1.69x. Moreover, ATY’s FWD EV/EBITDA of 12.68x is above the sector’s median of 9.91x. However, rich valuations are the common sign for high-growth technology stocks. Therefore, I believe this premium is worth paying.
For the next quarter, analysts project ATY’s EPS to be $0.06. In addition, analysts expect that its fourth-quarter revenues should lift by 5% to $29.23 million.
Wall Street analysts have established a “Moderate Buy” rating for ATY, with an average price target of $9.42.
2U, Inc. (TWOU)
Founded in 2008, 2U, Inc. is a Maryland-based company that offers online education services. The company operates through two business segments: Degree Program and Alternative Credential. In addition, the company’s acquisition of edX expanded its offered program base to 3,500 from 500.
However, shares of an education technology company have plunged about 31.2% since the beginning of the year.
Financial Overview & Analyst’s Estimates
The company’s total revenues for its second quarter of 2021 have risen 29.8% year-over-year to $237.2 million, beating Wall Street estimates by $3.9 million. TWOU’s degree program segment revenue has been reported 26% higher YoY at $146.2 million, while its alternative credential segment revenue increased 36% YoY to $91 million. Additionally, TWOU disclosed a Non-GAAP Q2 EPS of ($0.09), topping analysts’ consensus by $0.07.
The company’s Adjusted EBITDA came in at $19.2 million compared to $17.1 million as of Q2 2020.
Let’s take a look at TWOU’s valuation metrics, as it is important to note that the company currently trades with a premium based on FWD P/S and FWD EV/EBITDA multiples of 2.20x and 32.85x, respectively. These figures are above the sector median threshold of 1.27x and 10.55x. However, its growth rates can somewhat justify rich valuations.
Analysts established a consensus estimate of ($0.25) EPS for the third quarter, ending September 30th, 2021, representing a modest decrease compared to the year-ago figure of ($0.24). However, the $232.21 million average revenue projection for the next quarter represents a 15.50% increase year-over-year.
Wall Street analysts have rated TWOU as a “Moderate Buy”, establishing an average price target of $58.00.