It may only be October, but 2021 is already winding down. That’s especially the case when it comes to new initial public offerings (IPOs). The tech sector was on fire last year, and this past year there were still several more new tech stocks worth investor attention. However, there was certainly one that stuck out. Not only is it one I would buy now based on its business model, but Motley Fool investors can compare it to a tech stock on the TSX today that has done very well.
The top among tech stocks
I have to pick Converge Technology Solutions (TSX:CTS) as my top choice among tech stocks with IPOs this year. The company is a software-enabled, hybrid IT solution provider throughout North America. It has a solid business supported by providing hardware, software and managed services to both corporations and government institutions. But its main avenue for growth this last year? Acquisitions.
Most recently, the company added LPA Software Solutions to its list of buys. This gives it a massive foothold through the United States in the business analytics department using artificial intelligence data collection. The deal brings in hundreds of clients to Converge and marks the whopping 24th deal Converge has made since October 2017, according to the company’s statement. Clearly, something is working.
The company’s recent earnings report was nothing short of awesome, with revenue increasing 52% year over year, gross profit up 43%, and adjusted EBITDA up 86%. This didn’t include the millions in revenue brought in from acquisitions announced in June but not yet closed. Yet even with shares up 72% since being added to the TSX today on February 11, 2021, shares have dropped since all-time highs around $13 per share. That provides Motley Fool investors with a strong buying opportunity among tech stocks.
Value and potential
First, the value. Converge isn’t a steal when it comes to its P/E ratio, currently in the triple digits thanks to its acquisition history. However, a P/B ratio of under five is of better value for investors. And then there’s the future potential to consider, according to analysts. Analysts believe the stock is set to outperform among tech stocks. Its long-term fiscal targets gave many confidence in its path toward growth, aiming to reach $5 billion in revenue by the end of 2025. Further, it wants to reach $500 million in EBITDA by that time as well.
Even if this doesn’t exactly happen, it shows a commitment to the goal, seen in this past year. This has led to strong share growth, creating an opportunity for even more share appreciation, according to analysts. Management remains confident it can stay the course in terms of mergers and acquisitions, and has been incredibly successful thus far. It may even be able to create this yet again by going through Europe. So shares currently have a potential upside back to that $13 per share all-time high.
And it’s not as if this hasn’t happened with tech stocks before. A $10,000 investment in Constellation Software in 2006 would be worth $1.6 million today. And Constellation has an incredibly similar business model, acquiring and growing through its software-dedicated service. Shares came on the market in the single digits, and are now in the four-digit range. This could certainly be the case for Converge in another 15 years.
If Motley Fool investors are looking for tech stocks that you can still buy at the ground floor, I would highly consider Converge. The company is set up for stellar, stable growth over the next few years at least on the TSX today . And looking at Constellation as an example, it could keep soaring for decades to come.