Technology stocks make up of a large portion of growth stocks, which had a major boom during the low-interest rate environment of 2020. However, since that point, many stocks in this sector have corrected downward due to the high inflation and rising interest rate environment. Many famous value investors, such as billionaire Joel Greenblatt (Trades, Portfolio), have noted they use the 52-week low list to identify possible value opportunities.
As such, this discussion will take a look at two technology stocks that are trading at annual lows.
AMTD Digital
The first stock trading at a discount is AMTD Digital Inc. (HKD, Financial), a Hong Kong-based technology company that specializes in financial services.
It was founded in 2019 by a former UBS investment banker and had a blistering initial public offering in 2022, where its stock skyrocketed by 21,000% in an anomaly related to the confusion of its ticker symbol with the Hong Kong dollar. Since that point, its shares have come back down to earth (falling by over 78%) to trade at a 52-week low at the time of writing.
AMTD’s four main business services include digital financial services, media, content and marketing, the SpiderNet solution and various digital-focused investments.
Its SpiderNet is particularly interesting as it bridges the gap between technology companies and traditional banks, with a focus on the Hong Kong market. This means a fintech can leverage SpiderNet for various licenses, which are essential to operate in the financial sector.
Growing financials
In February, AMTD Digital released its financial results for the six months ended October 2022. This is later than normal for most companies and could be related to its roots in Hong Kong.
In U.S. dollars, the business reported $10.7 million (HK$83.7 million) in profit, which increased by a blistering 131.8% year over year, though it should be noted that the smaller base number makes the growth look much more rapid. Its total comprehensive income also increased by 134.8% to $10.6 million.
The company has gradually expanded its digital media segment, which now surprisingly includes a thriving movie business. This segment has recently announced China-based films such as "White Storm" (an action movie) and "Trading Floor" (a Wall Street-style financial movie). This may seem surprising for a fintech business, but in China such diversification is common. For example, e-commerce giant Alibaba (BABA, Financial) has a movie studio business.
AMTD has also has merged its asset group with AMTD Digital, which now owns a portfolio of real estate with a market value of approximately $500 million.
Its cash and cash equivalents have also risen to $138.7 million and, in February, the business expanded its credit facility to $15 million.
Valuation
The company trades with a price-earnings ratio of 39, which is not exactly cheap. Further, its operating margin is high at around 43%.
Its price-book ratio is 2.23, which is 27% cheaper than the industry average.
I believe the main valuation of AMTD is really driven by its large number of real estate assets (approximately $500 million), which make up at least half of its overall market value.
TTEC Holdings
TTEC Holdings Inc. (TTEC, Financial), a strategic consulting and service company that specializes in digital transformation, is also trading near a 52-week low.
The Englewood, Colorado-based company's core business focuses on improving the customer experience and lowering costs. TTEC accomplishes this through a combination of both technology platforms and human-based strategy.
Its TTEC Engage segment delivers business process outsourcing, tech support, sales and other services, while its CX Technology services design, build and operate customer experience solutions.
A positive customer experience is often correlated with increased revenue, referrals and customer retention. Amazon’s (AMZN, Financial) focus on “customer centricity” is a prime example of this.
The business has grown via multiple acquisitions since its founding in 1982. Today, it has over 2,000 employees across 19 locations.
Stable financials
TTEC reported strong financial results for the first quarter. Revenue of $633 million increased by 7.33% year over year and beat analyst forecasts by $34 million. This top-line growth was driven by a 2.4% increase in recurring revenue, which now represents approximately 55% of the total. This is a positive sign for revenue predictability.
Professional services revenue also rose by 14% year over year and now makes up 37.1% of the total.
Its engage segment generated $560 million in revenue, which rose by 9.3% year over year or 0.5% on a constant currency basis.
In the first quarter, TTEC acquired smart city assets from Faneuli, which contributed to revenue growth. By industry, health care and financial services showed resilience, with forecasted growth of 6% year over year.
Operating income was $50 million, which was produced at a 9.7% margin. Its cash flow from operations also rose to $49 million from $14 million in the prior-year quarter.
The company reported cash of $151 million and $933 million in debt. A positive is the majority of its debt is long term and, therefore, manageable.
TTEC is a great business for income investors with a forward dividend yield of 3.1%.
Valuation
TTEC trades with a forward price-earnings ratio of 25, which is a fair value relative to its five-year average based on my calculations.
However, the price-to-cash flow ratio of 9.2 is 26% cheaper than its average over the same period, while the enterprise value/Ebitda ratio of 8.29 is 29% cheaper.
The GF Value Line also indicates a fair value of $84. Therefore, the stock is significantly undervalued at the time of writing based on historical ratios, past financial performance and analysts' future earnings projections.
Final thoughts
The 52-week low list can be a great starting point to look for possible value investments.
In this case, I believe TTEC offers many characteristics of a value play due the ratios being lower than historic levels. The company is also aiming to offer many artificial intelligence-focused services and, therefore, could act as a tailwind for growth.
AMTD Digital is also an interesting business, but its complex structure, China base and relatively new listing means it is not as simple to model. I would personally like to let that particular stock season before diving in.
