While mega-cap tech giants are trading near record highs, several other companies are flying under the radar on Bay Street. In this article, I have identified two Canada-based tech stocks that are trading at a cheap valuation while growing at an enviable pace. Let’s see why you should consider investing in these two undervalued tech stocks today.
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Kraken Robotics stock
Valued at $390 million by market cap, Kraken Robotics (TSXV:PNG) is a marine technology company that designs, manufactures, and sells software-centric sensors and underwater robotic systems for unmanned underwater vehicles used in military and commercial applications.
It offers an underwater laser imaging system, an underwater vehicle for seabed mapping, an autonomous underwater vehicle, and an autonomous launch and recovery system that enables unmanned vehicles and their payloads to be brought aboard a host ship.
Kraken’s sales increased from $15.1 million in 2019 to $69.6 million in 2023. In the last 12 months, its revenue has more than doubled to $92 million. Kraken reported sales of $22.8 million in Q2 2024, up 67% year over year. Its product sales were higher at 83%, while Services sales grew by 11%.
Kraken Robotics is fairly profitable and reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $5.4 million in Q2. This indicates a margin of 24%, up from 22% in the year-ago period.
In Q2, Kraken announced multiple new orders totalling $20 million. Due to ongoing geopolitical tensions, the company is optimistic about strong industry demand signals. It stated, “The growth of unmanned systems in the subsea domain is accelerating as subsea drones are seen as a complement to very expensive, exquisite surface warfare assets and submarines, providing an attritable capabilities gap filler.”
Analysts expect its sales to rise to $95 million in 2024 and $116.4 million in 2025. Comparatively, earnings are forecast to more than double from $0.03 per share in 2023 to $0.07 per share in 2025. Priced at 24 times forward earnings, Kraken Robotics stock is not too expensive and trades at a 15% discount to consensus price target estimates.
Vecima Networks stock
Valued at $488 million by market cap, Vecima Networks (TSX:VCM) provides technology solutions that enable network service providers and content providers to connect individuals and enterprises to information and entertainment. It offers platforms and modules that process data from the cable network and deliver it in formats suitable for consumption across devices.
Vecima Networks has increased its sales from $95 million in fiscal 2020 (ended in June) to $291 million in fiscal 2024.
In Q4 2024, Vecima Networks reported revenue of $87.5 million, up from $75.5 million in the year-ago period. While its gross margins narrowed by four percentage points to 46.5% in Q4, its adjusted earnings per share rose by over 50% year over year to $0.34.
Analysts tracking the TSX stock expect revenue to expand by 23.3% annually in the next two years. Comparatively, earnings are forecast to expand from $0.8 per share in fiscal 2024 to $1.23 per share in 2025 and $1.66 per share in 2026.
Priced at 16 times trailing earnings, Vecima stock is grossly undervalued, considering its stellar earnings growth rates.
Notably, the company also pays shareholders an annual dividend of $0.22 per share, translating to a forward yield of 1.1%.
