After touching all-time highs recently, several tech stocks have pulled back significantly due to trade war escalations, valuation concerns, and the possibility of a global recession. However, the market mayhem allows you to buy quality growth stocks at a discount and derive outsized gains when market sentiment improves. So, let’s see how I’d allocate $1,000 in tech stocks right now.
Is this tech stock undervalued?
The first tech stock I’d own is RingCentral (NYSE:RNG), valued at a market cap of US$2 billion. Down almost 95% from all-time highs, RingCentral provides software-as-a-service (SaaS) solutions that enable businesses to communicate and collaborate in North America.
RingCentral doubled its revenue from US$1.08 billion in 2020 to US$2.1 billion in 2023. However, top-line growth decelerated to 9% in 2024, and sales are forecast to increase by 6% annually over the next three years.
In a recent Morgan Stanley conference, RingCentral outlined plans to transition from a single product to a multi-product platform. The company aims to expand beyond core UCaaS (Unified Communications as a Service) offerings and diversify its revenue base.
Chief Executive Officer Vlad Shmunis highlighted that RingCentral’s multiproduct approach is driving deeper customer engagement, with retention patterns “meaningfully better” as customers adopt multiple RingCentral solutions.
“Multi-product means obviously bigger share of the wallet, deeper engagement,” Shmunis said. “It also opens up new channel opportunities for us.”
Chief Financial Officer Abe Lamba noted the company has already reached US$50 million in ARR (annual recurring revenue) for new products launched just over a year ago, exceeding expectations toward their US$100 million target by the end of 2025.
RingCentral reaffirmed its 2025 outlook of 5% to 7% subscription growth. Management noted that maintaining a 20% market share in the UCaaS space would continue to be foundational, while new products, particularly Ring CX, should drive additional growth.
Analysts expect RingCentral to grow its free cash flow from $71 million in 2024 to $500 million in 2025. So, priced at four times forward FCF, the tech stock trades at a discount of 68% to consensus price target estimates.
The bull case for this TSX tech stock
Valued at a market cap of $185 million, VerticalScope (TSX:FORA) provides digital advertising services, including direct advertising campaigns, custom content solutions, and programmatic advertising solutions.
In the fourth quarter (Q4) of 2024, VerticalScope reported double-digit revenue growth and strong cash flow generation. It also outlined plans to accelerate mergers and acquisitions (M&A) activity in 2025, which should drive its revenue growth in the near term.
VerticalScope reported Q4 sales of $19.9 million, an increase of 11% year over year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 22% to $10.1 million, indicating a margin of 51%. Moreover, free cash flow growth stood at 17% year over year, indicating a 93% conversion rate.
Monthly active users (MAUs) increased 6% to 114 million in Q4, with executives targeting double-digit organic MAU growth for 2025, driven by AI-powered language translation and international expansion initiatives.
VerticalScope recently announced its first acquisition of 2025, purchasing Enfuse Digital’s communities for approximately $5 million. The acquisition will add 3.5 million MAUs across categories, including musical instruments, sailing, and recreational vehicles.
“Our M&A pipeline continues to build and we expect 2025 to be a stronger year for deals as we look to capitalize on our financial position to build greater scale,” said Chris Goodridge, president and chief operating officer.
Analysts expect VerticalScope to increase adjusted earnings from $0.02 per share in 2024 to $0.55 per share in 2026. Comparatively, free cash flow is projected to improve from $11.8 million in 2023 to $23 million in 2025. So, priced at 5.7 times forward FCF, the TSX tech stock is quite cheap and trades at a discount of over 100% in April 2025.
