These 2 Small-Cap Tech Stocks Are Grossly Undervalued, Says Needham

Markets are unstable this month, with the magnitude of the shifts most pronounced within the tech-heavy NASDAQ. That index fell 7.5% from its peak – reached on September 2 – a slide pronounced sufficient to have buyers questioning whether or not that is only a correction, or a real reversal of the bull market we noticed by way of the summer season. However in current periods, the index has been gaining; it entered the weekend on a excessive be aware, having added 2.3%. The quick rise within the NASDAQ in the course of the summer season was no fluke. It was based mostly on the true contributions that tech corporations are making to the financial system and our lives. From the 5G rollout, to enhancements in semiconductor chips, to the growth of IoT and sensible gadget capabilities – tech is in all places, and it’s rising quick. One of the best half is, you don’t want to purchase into the tech giants to participate. There are many decrease price tech shares on the market with clear paths ahead – typically, even paths to triple-digit share appreciation. Funding banking agency Needham, which earns a prime spot on TipRanks’ listing of High Performing Analysis Corporations, has identified two such shares. Utilizing TipRanks’ Inventory Comparability device, we have been in a position to consider these inventory picks alongside one another to get a way of what the analyst group has to say.Utilized Optoelectronics (AAOI)Utilized Optoelectronics is a frontrunner within the fiber-optic cable market, offering high-end networking cables and ancillary tools for the telecommunications, fiber-to-the-home, cable television, and web information middle markets. These are main markets, with various wants – and loads of demand.AO’s revenues mirror the excessive demand. The corporate reported $65.2 million in Q2, up 61% from the earlier quarter and 50% year-over-year. Margins have been fluctuating, however got here in at 21% for Q2. The corporate confirmed a 40-cent per share internet loss for the quarter, however that was a 33% enchancment sequentially.Alex Henderson, a 5-star analyst with Needham, is impressed with Utilized Optoelectronics’ outcomes, and says so bluntly. Whereas acknowledging some concern about margins, Henderson writes, “AOI posted an enormous beat and a good larger 3Q information with tendencies that seems to be accelerating into the fourth quarter and into CY21. The CATV enterprise, Telecom 5G chips, and Knowledge Middle 100G merchandise all delivered method forward of expectations… The mixture of improved volumes of 100G, ramping CPRI 25G chip gross sales, rebounding CATV Revenues present upside potential to Revenues, bettering Gross Margins and a clearer path to Money Move and EPS profitability.”With such bullish feedback, it’s no surprise that Henderson charges AAOI shares a Purchase, nor that his $22 worth goal implies a 105% upside for the subsequent 12 months. (To observe Henderson’s observe document, click on right here)Whereas Henderson is bullish, Wall Road is extra cautious. The analyst consensus ranking on AAOI is a Maintain, based mostly on 7 current opinions breaking all the way down to 1 Purchase, 4 Holds, and a couple of Sells. Shares are promoting for $10.73 and the typical worth goal of $16.43 suggests a 55% one-year upside potential. (See AAOI inventory evaluation on TipRanks)Viomi Expertise Firm (VIOT)Subsequent up is a Chinese language tech agency, Viomi. This can be a holding firm, controlling a community of holding corporations within the IoT sector. Viomi’s merchandise embrace ‘sensible dwelling’ enabled units, from followers and fridges to water heaters and washing machines. The corporate’s subsidiaries develop and market the units to a home Chinese language buyer base – and with an city inhabitants of 831 million and rising in measurement and wealth, that buyer base is large.Like most nations, China noticed an financial slowdown in 1H20 as a result of coronavirus pandemic. Viomi, whose revenues and earnings had been rising in 2019, noticed each slip within the first half of this yr. In Q2, revenues have been at US$238.4 million. That was method down from the $1.74 billion recorded in 4Q19. EPS, which fell from 20 cents to six cents in Q1, was up barely to eight cents in Q2.Regardless that the monetary outcomes have been iffy, Viomi reported that buyer progress remained regular. For the second quarter, the corporate reported cumulative family attain at 4.2 million. This was up from 3.7 million in Q1, and a couple of.3 million in 2Q19. And, Viomi is seeing repeat prospects – the corporate stories that 19% of family customers have a minimum of two linked units, in comparison with 16% one yr in the past.Reviewing Viomi for Needham, analyst Vincent Yu believes the corporate has a reasonably commonplace pathway to retailer success.“With the introduction of latest product strains corresponding to sensible TVs, and air conditioners, we consider Viomi has hit a milestone by way of class growth. We count on to see the introduction of latest SKUs with greater ASPs, and roll-backs in reductions for newly launched product classes,” the analyst opined. “We predict Viomi’s gross margin was in-line with business tendencies throughout 1H20. The house equipment business as a complete skilled a cloth headwind as a result of Covid 19 […] We consider the demand restoration for the business and client demand that began in June will increase the gross margin in 2H20.”Yu’s Purchase ranking right here comes with a worth goal of $12.50. This implies a 117% one-year upside potential for the inventory, which is at the moment promoting for $5.76 per share. (To observe Yu’s observe document, click on right here)General, Viomi is taken into account a “Average Purchase” on Wall Road, with one Purchase and one Maintain ranking from analysts. The consensus worth goal of $9.40 exhibits a 63% upside from present ranges. (See VIOT inventory evaluation on TipRanks)To search out good tech concepts for shares buying and selling at enticing valuations, go to TipRanks’ Finest Shares to Purchase, a newly launched device that unites all of TipRanks’ fairness insights.Disclaimer: The opinions expressed on this article are solely these of the featured analysts. The content material is meant for use for informational functions solely. It is vitally essential to do your personal evaluation earlier than making any funding.

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