Investing in undervalued stocks is a popular strategy as it helps you beat broader market returns over time. You need to identify quality companies that currently trade below their intrinsic value and benefit from outsized gains when market sentiment improves.
Here are two such undervalued TSX tech stocks you can consider buying today.
Vitalhub stock
Valued at $255 million by market cap, Vitalhub (TSX:VHI) is a health-tech company that provides solutions in Canada, the U.S., the U.K., Australia, and Asia. Its solutions include electronic healthcare records, case management, and patient flow, among others.
Vitalhub has almost tripled sales from $13.79 million in 2020 to $40 million in 2022. Unlike several other growth stocks, the company generates consistent profits, reporting an operating income of $35 million in the last four quarters.
Vitalhub recently announced the acquisition of BookWise Solutions for roughly $4 million. BookWise provides scheduling software for healthcare companies ranging from general room booking solutions to specialist scheduling systems. Its suite of products should allow enterprises to easily manage resources and improve operational efficiencies. BookWise ended 2023 with more than 150 customers and sales of $1.5 million, 50% of which is recurring in nature.
VitalHub reported strong double-digit year-over-year growth across business segments such as term licenses, maintenance and support, perpetual licenses, and services. Its business continues to grow organically as well as via acquisitions, allowing it to increase annual recurring revenue by 38% year over year to $42.6 million. The company grew 17% of its top line organically, while the rest was derived from acquisitions.
Vitalhub ended the third quarter (Q3) with almost $30 million in cash, providing it with enough room to navigate an uncertain macro environment. Analysts tracking the TSX stock expect sales to rise to $60 million in 2024, while adjusted earnings are forecast at $0.17 per share. Priced at 34 times forward earnings, VitalHub stock is not too expensive, given its stellar growth estimates.
Sylogist stock
An enterprise-facing software company, Sylogist (TSX:SYZ), provides SaaS (software-as-a-service) solutions to clients in Canada, the U.S., and the United Kingdom. Valued at $212 million by market cap, it manages IT services, network security, and web portals.
In Q3 of 2023, Sylogist reported revenue of $16.8 million, an increase of 18% year over year. Its SaaS ARR (annual recurring revenue) growth stood at 26 years over year, while recurring revenue grew by 12%.
With a gross margin of 61%, Sylogist reported an adjusted EBITDA of 26% or $4.4 million in the September quarter. It ended Q3 with a backlog of $32.2 million, providing investors with enough revenue visibility.
Due to its consistent profit margins, Sylogist pays shareholders an annual dividend of $0.04 per share, translating to a forward yield of 0.44%.
Analysts tracking SYZ stock expect sales to rise from $66 million in 2023 to $73 million in 2024. Its adjusted earnings per share are forecasted to expand from $0.07 per share to $0.26 per share in this period.
Priced at 34 times 2024 earnings, SYZ stock might seem expensive. But analysts remain bullish and expect the TSX tech stock to surge 30% in the next 12 months.
