Sector Recovery: 50% Upsurge for 2 Tech Stocks

The beaten technology sector might take a long time to recover, although two stocks could be exceptions given their favourable business outlooks.

Christopher Liew, CFA

Christopher is a CFA Charterholder and a former financial advisor at RBC.

Published March 26, 2022 9:30 am EDT

TSX’s technology sector has advanced 3.01% and 1.37% in the last 30 days and five days. The sector remains the worst performer year to date (-19.37%), although it was of one of the top advancers when the index posted its new all-time high. However, recovery might take longer, as the rout is likely to continue throughout the year.

Nevertheless, not all constituents will hit rock bottom. Looking at the price forecasts of market analysts, Nuvei (TSX: NVEI)(NASDAQ: NVEI) and Quarterhill (TSX: QTRH) appear ready to break out. Their potential surge could be 50% or more.

Superb revenue and volume growth

Nuvei carries a buy to strong buy ratings from market analysts. The share price today is $88.64, or a 34.8% gain since March 1, 2022. On a year-to-date basis, the tech stock is up 8.1%. Based on market analysts’ 12-month forecast, the return potential is between 25.7% (average) and 73.6% (high).

The $12.8 billion global payment technology company lost favour with investors in 2021 due to an adverse short-seller report. However, interest is returning following the impressive financial results in Q4 and full-year 2021. In the quarter ended December 31, 2021, revenue and total volume increased 83% and 127%, respectively, versus Q4 2020. Net income, however, decreased 45.6% to US$12.3 million.

For the full year, revenue and total volume grew 93% and 121% year over year. Nuvei’s net income reached US$107 million compared to the US$103.7 million net loss in 2020. Notably, free cash flow (US$290.1 million) and cash flow from operating activities (US$266.9 million) recorded generous increases of 100% and 182%, respectively.

Nuvei chairman and CEO, Philip Fayer, said, “We have made tremendous progress while investing in our flexible, scalable, modular technology platform to address the rapidly evolving global and local needs of our customers.” With the increasing addressable market, Nuvei will focus on product innovation, growth with existing customers, attracting new customers, and acquisitions to drive the future of commerce.

According to Fayer, the revenue target for 2022 is between US$940 million and US$980 million, which represents 30-35% year-over-year growth. For the adjusted EBITDA margin, the growth target is 50% over the long term.

From foes to partners

Quarterhill was obscure before but not anymore. Trading volume picked up on March 22, 2022, on news of a patent licence agreement with Apple. The $260.78 million company operates in the Intelligent Transportation System (ITS) industry, an industry many people are unfamiliar with.

Besides providing tolling and enforcement solutions in the ITS industry, Quarterhill is a leader in Intellectual Property Licensing. Its subsidiary, Wi-Lan, is a successful patent-monetization company. It helps global partners with their customers to unlock the intellectual property values through various patent monetization models.

Wi-Lan and its subsidiary, Polaris Innovations, are no longer opponents of Apple in an infringement case. After the parties agreed to a settlement and dismissal of all litigation pending in Canada, Germany, and the United States, a patent-licensing deal was signed.

Quarterhill trades at only $2.35 per share — a good entry point. Market analysts are bullish and has a 12-month average price target of $3.42 (+45.5%). However, the high price target of $4.25 (+80.9%) is realizable with the Apple licensing deal.