Technology stocks slipped last month, but the sector is starting to turn around. As techs rebound, investors need answers to some important questions: How long will the rebound last? Are all the techs going up? Which ones are best to re-enter the tech market? TipRanks has the data you’ll need to start sorting through the stocks. Here we’ll take a look at three tech sector companies that have ‘Strong Buy’ ratings, averaged over the last three months of analyst reviews.
HubSpot, Inc. (HUBS – Research Report)
HubSpot is well known to anyone in the digital marketing business. The software company produces an array of tools for SEO, web analytics, content management, and social media marketing. Their free e-books are a popular professional resource, as well as an effective loss-leader.
Quality products and good customer support bring success, and that was visible in this month’s Q3 earnings report. HubSpot reported 35% increases in total revenue and subscriptions, as well as a 40% increase in total customers. Average revenue per customer was up, although slightly lower than Q3 last year.
In his statement on the quarter, CEO Brian Halligan said, “HubSpot delivered another strong quarter with total revenue growth of 35% and a 4-point improvement in non-GAAP operating margins versus last year. We've invested heavily in our platform to capitalize on the massive opportunity in the mid-market. We're well positioned to continue to grow with our customers for years to come.”
Halligan is not just whistling Dixie; top market analysts are in agreement with his optimistic outlook. Kohi Ikeda (Track Record & Ratings) of Oppenheimer, reviewed the company just after the Q3 report, and said, “The 3Q results are another positive data point that HubSpot’s positioning in the midmarket customer engagement category is strengthening.”
Moreover, the emerging products- think Sales, Service, Suite- are gaining traction in the end market, and as adoption increases, the emerging products may potentially generate upside to Street estimates in future quarterly reported results, he says.
As a result, he reiterated a Buy rating and raised his price target to $160, from $150.
Five of HUBS’ last six ratings are ‘Buy,’ and the company holds a ‘Strong Buy’ consensus. The average price target is $156, an 8% upside from the $144 current share price.
PayPal Holdings, Inc. (PYPL – Research Report)
PayPal is the major player in online payment processing. The company holds an important contract with online auction platform eBay (EBAY) and reported strong Q3 results. Active user accounts increased by 15%, payment transaction gained 27%, and revenue grew 14%. It was, in the company’s words, “an excellent quarter.”
The top analysts are in broad agreement with the company’s assessment. The highest recent price target, of $119, comes from James Fotheringham (Track Record & Ratings
) of BMO Capital. He set that price without comment, although it is important to note that it represents a 36% upside forecast.
Cantor Fitzgerald’s Joseph Foresi (Track Record & Ratings) spelled out the case for investing in PYPL: “We believe PayPal can grow at roughly double the market average, supporting its premium to the group. Technically, PYPL may break out to the upside of a sideways channel based on strong fundamentals.” Foresi’s price target is $101, exactly on the average, and a 14% upside from the current share price of $88. The analyst consensus here is another ‘Strong Buy.’
Salesforce.com, Inc. (CRM – Research Report)
Cloud computing is all the buzz, and rightly so. The cloud offers access to low-weight software, at lower cost than standard installations. Salesforce.com has leveraged those advantages to power its core business of customer relationship management systems. A strong business model, a loyal workforce, and a reputation for excellence can’t always prevent a stock correction. CRM took a hit at the beginning of October – in line with the general market turn-down – and is only now beginning to recover.
Watch for Salesforce to report Q3 earnings later this month. The company has a history of beating estimates – by 55% over the last two quarters – and analysts are expecting another strong data set at the next earnings call. This background helps make sense of the 26 consecutive ‘Buy’ ratings that Salesforce has received over the last two months.
Those ‘Buy’ ratings come with high price targets, too: the average PT is $175, an upside of 23% over the stock’s current $141 share price. Oppenheimer’s Brian Scwartz (Track Record & Ratings
) gave a strong case for buying CRM, and his comment gives a good summation of the analyst consensus: “We believe group fundamentals remain strong, and valuations may benefit from better sentiment from a positive earnings season.”
Importantly, CRM’s valuation is currently in line with the SaaS industry average. This matters because Schwartz believes CRM should trade at a premium to the SaaS group considering 1) its 2-5x larger TAM and 2) better predictability.
Author: Michael Marcus