With so much damage in the books this year, I think some of the names down more than 75% from their highs are interesting plays for courageous contrarians. Align Technology (NASDAQ:ALGN) and Roku (NASDAQ: ROKU) vein two intriguing fallen tech companies that could have what it takes to turn around over the next three years. Fat break or not, the following firms are likely to be around 10-15 years from now, likely commanding much higher share prices than today.
Still, like during the aftermath of the 2000 tech stock bust, investors must focus only on the companies with the fundamentals (and strong enough balance sheets) to rise out of the 2022 tech wreck. If you’re looking to buy freshly-imploded stocks, you must ask yourself if a firm has a product that can continue to grow from here. Furthermore, a product with a wide moat is preferred because, as you may know, it’s hard to read the future!
Great products and wide moats still may not be enough to justify a purchase. Investors must evaluate whether or not a company has the means to take meaningful market share without enduring too much cash bleed.
It’s a lot of homework to analyze high-growth companies. However, the potential long-term rewards may make the work worthwhile as tech valuations nosedive across the board.
Align Technology (ALGN)
Align Technology stock has now shed around 73% of its value from its high. The stock has been out of alignment since peaking out with the rest of the high-growth tech pack in 2021. Although Align is one of the top innovators in the aligner scene, many cash-strapped people with crooked teeth are likely to hold back on getting work done until they’re in a better financial position. At the very least, people want certainty before they embark on a hefty financial procedure.
Despite the bleak road ahead, the new valuation in the stock is enough to put a smile on any innovation investors’ face. After a brutal crash, ALGN stock trades at a palatable rate 29.7x trailing earnings. Although the multiple could expand as recession-affected quarters looks to weigh on the bottom line, I do think Align’s post-recession roadmap could set the stage for an epic recovery in the name.
At the end of the day, Align has a leading product in a market ripe for growth. The tech behind aligners can only get better with time, and as prices become more reasonable, braces could be on their way out for the most part.
Last month, Align signed a deal with Goldman Sachs (NYSE:GS) to accelerate share buybacks. After such a beating, Align’s managers clearly view its stock as a great deal. If Align can turn a corner in the new year, such accelerated share buybacks could prove well-timed.
What is the Price Target for ALGN Stock?
Wall Street remains cautiously optimistic about Align stock, with a Moderate Buy rating based on four Buys and two Holds. The average ALGN stock price target of $239.00 suggests 21.5% upside potential for the year ahead.
Roku is a pandemic winner in the streaming space that has shed nearly 88% of its value. With little in the way of relief, it’s unclear what can help grant the stream-stick maker any relief. Undoubtedly, streaming hardware has become commoditized, with so many competitors ready to take a hit to bring them into their streaming ecosystems.
Roku’s push into original content may not provide much relief, given the sell-off in media and streaming stocks. In a way, investors view streaming as a money sink with little in the way of long-term growth.
It’s unclear how Roku can turn things around as its streaming rivals look to go after its market share. Thankfully, Roku stock trades more like a deep-value play than a growth stock at just 2.3x sales. However, its 50.3x trailing earnings multiple still seems too rich, given the recession headwinds ahead.
Roku is cutting its workforce by 5% to curb expenses in the new year. As the firm looks to limit cost bleed, there is hope for beaten-down shares, with Jeffries recently upgrading the name, noting “limited downside” from these depths. That said, the long-term recovery game plan remains unclear in such a hostile environment for streamers. As such, Roku stock remains a risky play, even with fans like it Cathy Wood that its side.
What is the Price Target for ROKU Stock?
Wall Street is cautious about Roku, with a “Hold” rating. I think they’re right to have a wait-and-see approach. The average ROKU stock target of $58.71 implies 1.1% downside potential from here.
Conclusion: ALGN Stock Looks Like a Better Play
Align and Roku have been through one of the worst years on record. Analysts like Align way more than Roku at these levels. All things considered, I do think ALGN could outpace ROKU in the new year.