3 Beaten-Down Tech Stocks With Up to 223% Upside, According to Wall Street

It’s a challenging time to be a tech-stock investor. Since mid-November, the tech-centric Nasdaq Composite declined by as much as 22%, which officially put the index in bear market territory as recently as last week. What’s more, a number of popular pandemic tech plays have sold off considerably since February 2021.

While sell-offs aren’t much fun, they’re a natural part of the investing cycle and potentially the perfect time to put money to work in the stock market. Ultimately, every downdraft in the broader market has eventually been erased by a bull market rally.

According to the lofty published price targets from a select group of Wall Street analysts, the following trio of beaten-down tech stocks offer as much as 223% upside over the next year.

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Snowflake: Implied upside of 86%

Up first is cloud-based data-warehousing company Snowflake ( SNOW 5.63% ). As of this past weekend, the stock was 45% below its all-time high of $405, which was hit in November.

This big drop hasn’t done much to sway the confidence of Credit Suisse analyst Phil Winslow, who maintains a $415 price target on Snowflake. Winslow has long viewed Snowflake as a company that would play a key role throughout the “data value chain,” which is probably why he sees 86% upside in its shares. 

The beauty of Snowflake’s operating model is twofold. First, there are clear competitive advantages. For example, sharing data stored on competing cloud infrastructure services can be difficult for businesses. But this isn’t an issue for Snowflake customers. Because Snowflake’s infrastructure is layered atop these popular cloud infrastructure providers, sharing data is seamless.

In addition, Snowflake has also shunned the traditional subscription-based payment model in favor of one that charges based on the amount of data stored and Snowflake Compute Credits used. This considerably more transparent pricing method allows Snowflake’s customers to better control their expensing (and they seem to like that).

The other benefit with Snowflake for investors is an industry-leading growth rate. In the company’s recently reported fiscal fourth quarter, it delivered 102% year-over-year sales growth with an exceptional net revenue retention rate of 178%. In simpler terms, existing clients spent 78% more in Q4 2022 than they did during the comparable quarter last year. 

As I’ve previously pointed out, Snowflake’s biggest enemy is its valuation. In a rising-rate environment, investors may not be willing to pay a multiple of 34 times expected fiscal 2023 sales, or more than 600 times consensus earnings for fiscal 2024. While I’m of the opinion that Snowflake deserves a premium for its growth and competitive edge, it still looks too pricey for my taste.

A person holding a smartphone that's displaying a volatile crypto chart with buy and sell buttons above it.

Image source: Getty Images.

Coinbase Global: Implied upside of 223%

Another beaten-down tech stock with abundant upside is cryptocurrency exchange and ecosystem-play Coinbase Global ( COIN 5.24% ). Shares of the company have plunged 57% since hitting an all-time high last year.

Even before Coinbase started trading as a public company last year, MoffettNathanson analyst Lisa Ellis issued a $600 price target on its shares, which would value it at more than $150 billion. Ellis points to Coinbase’s ecosystem “providing essential building blocks to facilitate the use of cryptocurrencies” as the core reason for her bullishness on the company. 

Coinbase Global’s first year as a publicly traded company certainly went well from a fundamental standpoint. The company ended 2021 with 11.4 million monthly transacting users, which more than quadrupled where it finished 2020. Further, assets stored on the platform more than tripled to $278 billion, with net income soaring by a factor of 11 to $3.62 billion.  Strong performances from the Big Two, Bitcoin and Ethereum, coupled with growing interest in non-fungible tokens (NFT) and a blockchain-based, decentralized metaverse, drove investors to crypto like never before.

But there are also reasons for investors to be skeptical of Coinbase — even at $186 a share. For instance, Bitcoin and Ethereum accounted for 55% of total trading volume in 2021. These two tokens are prone to wild swings and bear markets. The problem is that bear markets in the crypto space often cause volume and interest in digital currency investing to fall off a cliff. In other words, Coinbase is far more reliant on investor emotions than its own innovation.

It’s also a company that could contend with shrinking margins over the long run. There’s virtually no barrier to entry in the crypto-exchange space, which could allow competing platforms to undercut Coinbase’s transaction fees. As investors, we watched traditional online stock brokerages undercut each other on price for two decades until commission fees were eventually done away with altogether. My suspicion is Coinbase will face the same persistent pressure on its margins over time.

A person using a laptop to conduct a virtual web meeting with four other people.

Image source: Getty Images.

Zoom Video Communications: Implied upside of 154%

The third and final beaten-down tech stock that could rocket higher, according to Wall Street, is cloud-based Web-conferencing company Zoom Video Communications ( ZM 2.51% ). Shares of Zoom have plummeted 80% in 17 months since hitting a record intraday high of nearly $589.

At the moment, Wall Street’s high-water price target on Zoom comes courtesy of analyst Sterling Auty at JPMorgan Chase. Even after lowering the firm’s price target to $295 from $385 following Zoom’s fourth-quarter operating results, a $295 target still implies up to 154% upside over the next 12 months. 

Auty’s long-term growth case for Zoom hasn’t changed much, even as shares of the Web-conferencing company have returned from the stratosphere. Auty believes that enterprise adoption will begin to pick up in 2022 (fiscal 2023 for Zoom) and beyond. 

In many respects, the ultimate pandemic play is still firing on all cylinders. Full-year sales in fiscal 2022 hit $4.1 billion, which marked a 55% increase from the previous year and a 558% increase over the company’s sales in fiscal 2020.

Growth has been particularly strong among larger businesses. Zoom ended last year with 2,725 customers that were contributing at least $100,000 in trailing-12-month (ttm) revenue. That’s up from just 641 customers contributing at least $100,000 in ttm sales in fiscal 2020. 

Interestingly, though, Zoom’s share price has gone virtually nowhere despite the company generating $1.6 billion in operating cash flow last year and sitting on a hearty $5.4 billion in cash and marketable securities. This cash flow and war chest should allow Zoom plenty of room to innovate and make earnings-accretive acquisitions.

Even though growth has slowed from its peak during the pandemic, Zoom’s Web-conferencing solutions have become embedded in the workplace. In fact, “Zoom” has become its own verb to describe a virtual meeting in the wake of the pandemic. While its hypergrowth stage is a thing of the past, sustained low double-digit growth could eventually (i.e., probably not in the next year) drive Zoom to $295 a share.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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