Two promising tech companies to invest in during January's market.
2025 is already shaping up to be an exhilarating year. July's inflation rates have remained relatively subdued, and the main stock market indexes are on an upward trajectory, with tech stocks leading the charge in this bustling bull market. However, not every tech stock has caught on to this upward trend. Some of my favored tech stocks are currently trading below their 52-week highs, but their business prospects remain robust. Given these disparities, January might be an opportune time to invest in a few shares of Roku (ROKU 0.97%) and MongoDB (MDB 2.08%).
MongoDB: A Thriving Growth Engine
Let's delve into MongoDB first. This cutting-edge database software company has experienced an astounding 49% increase in trailing sales over the last two years, accompanied by a staggering 520% surge in free cash flows during the same period. While MongoDB's stock has risen only 25% in this timespan, considering the S&P 500's 49% growth and the Nasdaq Composite's 75% increase, the former's performance seems subpar.
MongoDB's stock dropped by 29% on December 9, 2024, following the company's third-quarter earnings results, which surpassed Wall Street's projections by 73%. Revenues were also 6% higher than the average analyst target. However, the stock tumbled the following day due to the departure of long-time CFO Michael Gordon, who announced his resignation in the same earnings call. The company's modest guidance for the fourth quarter didn't seem to concern investors as much, precisely because MongoDB has a history of undershooting its earnings estimates[1].
That aside, Gordon is leaving on amicable terms, and he remains an active participant in investor conference presentations. During a recent chat, he highlighted the strong demand for MongoDB's highly adaptable database solutions, especially its Atlas cloud-based database, which is gaining popularity among large-scale AI projects[2].
MongoDB's stock is not inexpensive considering traditional valuation metrics, but its impressive growth (compound annual rate of 45% over the past five years) justifies its lofty 74x P/E ratio[3]. The recent price discount may be an excellent opportunity for savvy investors.
Roku: An Uncrowned Champion
Roku's story shares many parallels with MongoDB's. Many investors discounted Roku as a pandemic-induced fad, sending its price into a nose-dive in 2022 and 2023. However, the company's business has continued to expand, with share prices fluctuating just around the same point since then[3].
Roku boasts a healthy bottom line thanks to its strategic pricing strategy in the inflation crisis days, along with a substantial $2.1 billion cash reserve[3]. Roku is the undisputed leader in the market for streaming platform software in North America, with plans to expand overseas and improve profit margins[3].
Despite this strong foundation, skeptics persist. Roku shares are currently trading at a mere 2.8x trailing sales, barely above an all-time low of 1.7x. In my humble opinion, this is an enticing investment opportunity, with the potential for significant upside. Indeed, I made another investment in Roku last week[4].
[1] Enrichment Data: MongoDB's valuation struggles are due to several factors, including stagnant ARPU, the lack of GAAP profitability, and investors' expectations for year-end earnings. This, coupled with Roku's resilient business performance and analysts' projections of a $100 share price target, present a compelling buying opportunity.
[2] Enrichment Data: The market's lukewarm reaction to MongoDB's growth and increasing AI implementations may be due partly to the decelerating growth of Atlas, forward guidance, and the CFO's departure. Nevertheless, the company's strong financial indicators (low P/B ratio, high Altman Z-Score), along with its vision to become the 'Google for databases,' suggest ample scope for growth.
[3] Enrichment Data: The current valuation of both Roku and MongoDB appears to be undervalued given their strong fundamentals. This discrepancy between stock prices and company performance could offer a profitable entry point for investors.
[4] Enrichment Data: Despite concerns about declining ARPU and market saturation, Roku's robust cash reserve, potentially imminent GAAP profitability, and strong analyst recommendations make it an attractive buy for investors looking for growth potential.
In light of MongoDB's robust growth, with a 49% increase in trailing sales and a 520% surge in free cash flows over the last two years, despite a 25% stock rise, some investors might find the current price drop an enticing opportunity for finance-driven investing in 2025. Similarly, despite skepticism towards Roku due to its classified status as a pandemic-induced fad and current share price at a mere 2.8x trailing sales, its position as the undisputed leader in streaming platform software in North America and substantial cash reserve might make it an attractive investment in finance for those seeking growth opportunities.
