Technology stocks such as Shopify were on fire in this year’s first half, after a difficult 2018. However, market weakness and valuation concerns hurt tech stocks this month.
Roku (ROKU) stock is currently trading at $104.23. The stock has risen 0.4% today, but has fallen 30% this month. It’s 41% below its 52-week high of $176.55, but still up by a staggering 239% year-to-date, making it a leader among tech stocks.
Roku investors are concerned about competition growing in the streaming device market, where it competes with Apple TV, Amazon’s Fire TV Stick, and Google Chromecast. It now has to fight off Comcast and Facebook, too.
A lot will depend on Roku’s third-quarter results and guidance. As the cord-cutting phenomenon gains momentum, Roku will likely focus on international expansion to boost sales, which could boost its stock. It’s a market leader in North America.
Roku, still unprofitable, is valued at $12 billion, or 11 times its estimated 2019 sales. Analysts expect Roku’s sales to grow 47.8% this year and 36.3% next year. Their average target price of $131 for Roku implies a 26% upside from its current price.
Shopify outpaces tech stocks and ETFs
Canada’s leading e-commerce company, Shopify (SHOP), is down 1.5% today and 25% this month. The stock is trading at $290.18, 29% below its 52-week high of $409.61.
Shopify has also had an excellent run this year despite the recent correction, and is up close to 110% year-to-date. Its stock was affected after the company priced a second offering to raise $600 million at $317.50 per share. It also acquired 6 River Systems for $450 million earlier this month.
Shopify was planning to invest over $1 billion to set up and expand fulfillment centers. The second offering and acquisition are major steps in that direction. But investing in fulfillment centers could hurt Shopify’s profit margins.
Like several other high-growth tech stocks, Shopify is at a GAAP loss. Analysts expect it to be profitable by the end of 2022. Shopify is valued at $33.6 billion, or 21.8 times its 2019 estimated sales.
Analysts expect Shopify’s sales to grow 43.4% this year and 34.3% next year. Their average target price of $362 for the stock implies a 24.4% upside from its current price.
Twilio is trading 29% below its 52-week high
Cloud communications platform Twilio (TWLO) is trading at $107.16. The stock has lost 18% this month, and is trading 29% below its 52-week high of $151. Twilio and several other high-growth tech stocks were impacted earlier this month as investors became concerned over their rising valuation.
Twilio is valued at $14.6 billion, or 13 times its 2019 estimated sales. Although analysts forecast Twilio’s sales growth decelerating from 72% this year to 33% next year, it may stay strong enough to build investor confidence.
Twilio has gained 32% year-to-date. Analysts expect its earnings to grow 54.5% in 2019, and 82.4% in 2020. Meanwhile, its forward PE ratio of 346x suggests the stock is still overvalued and could move significantly lower. Analysts’ average target price of $150 for Twilio implies a 41% upside from its current price.
Shopify, Twilio, and Roku are all high-growth tech stocks. Each has generated exponential returns since its IPO. They are all trading at a discount to analysts’ price targets, and in or close to oversold territory. While Shopify’s 14-day relative strength index score is 28, Roku’s and Twilio’s are 33 and 31, respectively. Scores below 30 suggest a stock is oversold.
Meanwhile, broader markets are still trading close to record highs and are vulnerable to a sell-off. If broader markets correct, Shopify, Twilio, and Roku could spiral downward.