Anders Bylund, The Motley Fool
5 min read
In This Article:
-
The tech sector has outperformed the broader market in recent years, but some proverbial Silicon Valley stocks remain undervalued.
-
Criteo’s stock price is down, but its free cash flow has hit an all-time high.
-
Hewlett Packard Enterprise is a major force in high-performance computing, yet its stock remains cheap.
The tech sector has been a market-beating beast in recent years. Tech-heavy exchange-traded funds (ETFs) like the Vanguard Information Technology ETF (NYSEMKT: VGT) and the Invesco QQQ Trust (NASDAQ: QQQ) have delivered annual returns of more than 21% over the last three years. Broad market trackers like the Vanguard S&P 500 ETF (NYSEMKT: VOO) only gained 15.5% per year over the same period. Yes, that's a fantastic return from a historic perspective, but the tech sector offered even stronger gains.
The technology boom has been driven by artificial intelligence (AI) news, starting with the public release of ChatGPT in November 2022. Many leaders in the AI market have soared sky-high, adding fuel to the tech sector's market performance fires, but also making those market darlings a bit expensive.
Fortunately, the market-moving forces left a few top-notch companies behind. I still see several tech stocks with a combination of bright business prospects and modest stock prices. Let's check out a couple of underappreciated bargain-bin tech stocks. This dynamic duo looks ready for a fresh bull run.
Digital advertising has been a troubled sector since the first signs of an inflation crisis in 2021. Paris-based commerce media specialist Criteo (NASDAQ: CRTO) provides purchase-inspiring ad services to global brands. This focus placed the Parisian company in the epicenter of the inflation-based slowdown -- why invest in lavish marketing campaigns when consumers are pinching pennies and tightening belts?
Criteo's revenues have indeed slumped since then, and so has the stock price. You know what's surging in recent quarters, though? That would be Criteo's free cash flows:
The cash profits took a temporary dip, but came back stronger, with trailing cash flows reaching an all-time high in May's Q1 2025 report. But Criteo's stock price is down more than 30% in the last quarter, and the shares are trading at the bargain-bin valuation of 11.3 times earnings and 6.6 times free cash flow.
I'm not saying the digital ad market is roaring back to life in the spring of 2025. The political climate may result in another inflation spike, and advertisers are already reducing their ad-spot spending right now. Hence, Criteo's undervalued stock may see more volatility and weakness in the coming months. However, I think the market makers have underestimated Criteo's ability to turn cash profits in a soft market.
