The year 2022 has witnessed the tech bubble burst, the crypto bubble burst, and the highest inflation in 29 years. This is an outcome of the generous stimulus package the government gave in 2020 that provided temporary relief to the economy but disrupted the market’s organic growth. Some tech stocks have returned to their pre-pandemic levels.
Two cheap stocks under $50
Here are two tech stocks which debuted in the 2020 tech bubble, surged to unprecedented levels, and corrected to their initial public offering (IPO) levels after the bubble burst.
- Dye & Durham (TSX:DND)
- Nuvei (TSX:NVEI)(NASDAQ:NVEI)
The question is, was their 2020-21 surge because of high optimism or did the companies have what it takes to grow in the long term? Let’s find out.
Dye & Durham stock
This cloud software company is among the few tech stocks that enjoy over 50% EBITDA (earnings before interest, taxes, depreciation, and amortization) margin and has an enterprise value/adjusted EBITDA ratio of 10. This ratio states that the company’s value, including debt, is 10 times its cash earnings from operations.
DND’s Unity software provides information services to financial, legal, and business professionals. The mission-critical nature of the software makes it sticky. DND aims to reach a $1 billion adjusted EBITDA by acquiring adjacent companies.
An important acquisition in DND’s strategy is that of Australia’s Link Group. This acquisition will add AU$257 million in adjusted EBITDA and bring $125 million in synergies. However, this acquisition came into the doldrums in June, when DND reduced the offer price after the market selloff. Link shareholders agreed to AU$4.81 per share — a 12% discount from the original price of AU$5.5.
The completion of the Link Group acquisition will increase the size of DND and drive its stock price. However, the acquisition has to secure regulatory approval. Moreover, DND’s TM Group acquisition has come under the competition regulator’s eyes. These pending deals have pulled DND stock down 21% in the last two months, and it is trading below $18. If these deals succeed, DND stock could jump 20-30%. Even if these deals don’t go through, the company could look for other acquisitions that can grow its EBITDA.
Dye & Durham has strong long-term growth potential, and the current dip is a good time to buy the stock and book an early spot in its growth story.
Nuvei stock
While DND stock debuted in July 2022, Nuvei stock debuted in September 2020. Nuvei is a payments platform that allows merchants to accept payments globally in various currencies, including crypto. The company witnessed unprecedented growth, 80% of which came from e-commerce volumes.
Nuvei stock has lost 75% value from its September 2021 high, as e-commerce volume slowed and crypto value fell. Moreover, the company became the target of short-seller Spruce Point Capital, who pointed out Nuvei executives’ involvement in Ponzi schemes. The stock is currently trading below its IPO price. As a payment platform, its growth is proportional to economic growth. The next few months are challenging for Nuvei as the fears of recession loom.
“We are amending our outlook for the remainder of the year due to unforeseen changes in currency, volatility in digital assets and cryptocurrencies, and caution with regard to global economic conditions.”
Nuvei’s chief executive officer Philip Fayer in the second-quarter earnings.
However, the stock has the potential to grow in an economic recovery. Nuvei caters to other verticals, like online gaming, financial services, digital products, and cryptocurrency. The stock could benefit if the above verticals see a volume surge.
Investor takeaway
These growth stocks have a strong business model and a significant addressable market to tap. These stocks would be volatile in the short term due to the challenging business environment. But once these headwinds subside, they could double your money during recovery. Buy these stocks through a Tax-Free Savings Account to avoid paying tax on higher returns from capital appreciation.
