As a shareholder who is keen to invest in technology stocks, you often face conflicts. On the one hand, technology stocks have historically provided higher returns than the overall market. On the other hand, technology stocks always feel that they are overvalued.
So you have two options. You can either buy high-quality technology stocks at current market prices or wait longer for corrections. However, here, the reasons for the price drop should always be considered. Because investment usually only pays off if there is no root cause for the crash. In my opinion, this applies to the following two stocks.
1. Sales staff
The revision to Salesforce’s share has been ongoing since September 2020. No wonder. Because since the corona low in March 2020, the share of CRM experts has increased by more than 145%. It usually takes several months for the company to grow to a company valuation.
In addition, with the acquisition of the collaboration service provider Slack, there are fundamental reasons for the price drop. With a traditional purchase price of 28 billion U.S. dollars, this acquisition is by no means a bargain. In addition, Slack’s competition with Microsoft is getting fiercer. At first glance it looks like a duel between David and Goliath.
Nevertheless, I think that in the long run, Salesforce is an interesting alternative to Microsoft stock. Obviously, the capital market has similar views. Because the P/E (price-to-earnings ratio) is 52.7, Salesforce’s rating is still ambitious even after the correction phase. But in dollar terms, the cost of future growth is still 16.5% lower than historical highs.
2. Serve immediately
In addition to Salesforce, I also think that ServiceNow’s stock price drop is a potential entry opportunity. Because after the historical high of $598.37, the current interest rate has dropped by 23.0% to $460.64.
The initial length of ServiceNow can be compared with the initial length of Salesforce. Because after the collapse of Corona, the papers of digital service providers may be more than 150% more expensive. The typical price pattern of technology stocks that initially entered the integration mode after the price increase. In my opinion, there is no fundamental reason for this.
Because the latest quarterly data can once again exceed market expectations. However, it is clear that growth may weaken. Because although the operating profit margin in the first quarter of 2021 is still 27%, it is expected that the operating profit margin for the full year of 2021 is only 23.5%. But does this justify the 23% discount?
It depends on whether profit margins are deteriorating because ServiceNow is investing in future growth, or whether pricing power is weakened by increased competition. In my opinion, the first reason is more likely. Because customer loyalty is high. Of the 100 customers, 97% of them renewed ServiceNow in the first quarter.
In addition, one must not forget what the current 2021 fiscal year is based on. Because in comparison with 2020, the coronavirus pandemic mainly promotes and accelerates digitalization.
Article 2 Cheap technology stocks worth seeing! First appeared on The Motley Fool Germany.
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Michael owns shares in Salesforce, ServiceNow, and Microsoft. Teresa Kersten works at LinkedIn and is a board member of The Motley Fool. LinkedIn is part of Microsoft. The Motley Fool owns shares in Microsoft, Salesforce, and ServcieNow and recommends them.
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