3 cheap technology stocks you should buy now

When people say a stock looks cheap, it can 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 trait – these stocks are affordable in a good way and should be on your shortlist for further research if you’re in a buying mood.

Block: Modest valuation for a growth stock

Let’s start with block (SQ -2.99%)a well-known provider of financial services with a modern touch.

The stock has a market cap of $40.7 billion and trades at high valuations like 51 times trailing-12-month earnings and 75 times free cash flow. But those multiples don’t tell the whole story, because Block is also a high-growth stock.

The company has grown its revenue at a compound annual growth rate (CAGR) of 51% over the past five years. Profits have increased 91% year-on-year. The average analyst expects this jump in profits to be followed by a CAGR of 28% over the next five years. Credit card processors like visa (NYSE: V) or MasterCard (NYSE: MA) cannot keep up with any of these growth metrics. Even digital payment services can PayPal (NASDAQ:PYPL) looks sluggish in comparison.

And when you choose valuation metrics that factor expected growth into the equation, Block’s stock suddenly looks incredibly affordable. Shares change hands at 15 times forward earnings. And the 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 reading close to 1.0 indicates a reasonable valuation, and lower readings make the stock more affordable.

In other words, Block’s rapid business growth is surprising many investors and analysts. Block’s stock gives you access to innovative payment services and business tools, with a dash of cryptocurrency expertise, as the company Bitcoin (CRYPTO: BTC) worth $470 million at today’s prices. The stock may seem expensive by traditional value standards, but it’s cheap when you consider Block’s tremendous business growth.

Roku: Far below previous highs

Then there is Roku (ROKU 0.05%)a veteran of media streaming technology and services.

This stock is not on this list due to a low valuation ratio. Roku is not currently profitable in terms of earnings and pretax operating income. Free cash flows are back in positive territory after dipping into the red in 2022 and 2023, but compared to cash earnings, Roku shares are no bargain either.

So how did it end up on my list of cheap tech stocks? This stock is down 44% since last November and 87% since its all-time high in July 2021. A price correction from the previous peak was probably in order, but this plunge goes too far.

Roku is a leading name in a high-growth industry with global business opportunities. It’s a large market with a lot of potential for future expansion. According to Statista, in mature markets like North America and Western Europe, more than 40% of potential users are signed up to streaming services. Developing countries like Indonesia and India haven’t even crossed the 10% mark. In other words, most of the world is still getting used to online streaming services, and Roku is benefiting from the increasing use of these services.

Meanwhile, Roku stock is headed for absolute disaster. Yes, earnings numbers are modest at best and negative in many cases, but the company is getting better over time. The upward trend should continue as Roku’s global footprint grows and the digital advertising sector recovers after a few years of inflation-driven doldrums. In a few years, it may 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 plummeting stock price? I don’t think so:

ROKU Revenue (TTM) data by YCharts

So Roku may not be cheap in many ways, but I see it as a deeply misunderstood growth story that deserves a higher valuation. It could take years for it to reach the lofty heights of 2021 again, and that’s OK. Roku’s stock is a direct bet on the long-term future of media streaming services, and you don’t even have to pick a successful content platform.

SoundHound AI: A rock-solid financial base

Finally, you should consider a voice control specialist SoundHound AI (SOUND 3.84%). With a uniquely powerful language interpretation technology and a growing list of well-known customers, I am looking at another long-term growth story that is not getting the recognition it deserves in the market.

Like Roku, SoundHound AI is not currently profitable. Like Roku, this company is also experiencing excellent revenue growth. Revenues have almost tripled in two years. And it’s easy to overlook how solid SoundHound AI’s financial foundation is.

The backlog and future revenue from subscription contracts currently stands at $723 million, up 113% from the same period last year. That’s a lot of guaranteed revenue for a company that currently reports annual revenue of about $55 million. And the backlog continues to grow rapidly as the company adds more customers with long-term contracts.

Additionally, SoundHound AI’s balance sheet is virtually debt-free and has a whopping $200 million in cash reserves.

I understand if you walk away after looking at SoundHound AI’s negative earnings and rising price-to-sales ratio. But that might be a mistake. The stock is moderately valued considering its generous (and growing) backlog, not to mention its rock-solid balance sheet. This small company is poised to take off for the long haul.