The development and expansion of the public cloud are major driving forces for tech over the past five years. It’s well documented how the rise of the public cloud has impacted the mega-cap names. It’s the platforms that those companies have created that have enabled a new generation of software companies to come up around them. This means there are enormous opportunities in smaller tech names.
Mid-cap tech stocks are historically inexpensive relative to their large-cap counterparts, and there are plenty of buying opportunities among mid-cap tech stocks.
Mid-caps offer investors the best of both worlds: less volatility than small-caps but greater growth prospects than large-caps. In fact, one dollar invested in mid-caps in 1978 would be worth $199 today vs. $181 for small-caps and $139 for large-caps on a total-return basis.
Select promising mid-cap companies of today could become the future Apple or Amazon. Not all mid-caps are created equally, and some will inevitably cease to exist at some point down the road, so it’s essential to look at several factors when considering which ones to buy. Our research team has identified three mid-cap tech stocks with solid fundamentals and well poised for growth.
Snap Inc. (SNAP)
Snap Inc. is a camera company that aims to empower people to express themselves, learn about the world, and have fun together. Their most popular product is Snapchat, a popular messaging app that allows users to send pictures and videos.
One reason we like SNAP is that they have an incredible opportunity in front of them to close the monetization gap that exists between Snap and other public social media companies. Up to this point, the company hasn’t yet come into its fullness as far as the advertising market is concerned. But they’re currently improving their ad tech, and over the next year, we could see a massive re-acceleration in their business as they start executing some of these opportunities.
Snap recently announced financial results for the quarter ended June 30, 2021, including news that revenue increased 116% to $982 million in Q2 2021; compared to the prior year, net loss improved 53% to $(152) million in Q2 2021, compared to the preceding year, and adjusted EBITDA improved 223% to $117 million in Q2 2021, compared to the prior year.
“Our second-quarter results reflect the broad-based strength of our business, as we grew both revenue and daily active users at the highest rates we have achieved in the past four years,” said Evan Spiegel, CEO. “We are pleased by the progress our team is making with the development of our augmented reality platform, and we are energized by the many opportunities to grow our community and business around the world.”
Of 42 polled analysts, 27 give the stock a Buy rating, 11 rate it a Hold, three and 3 rate it a Sell. A median 12-month price target of $87 represents a 17% increase from its current price.
Dropbox Inc (DBX)
DBX has been benefitting from the evolving demand for seamless enterprise communication tools. The company offers a platform that enables users to store and share files, photos, videos, audio files and documents. Increasing demand for cloud storage, triggered by the coronavirus crisis imposed work-from-home wave, has been acting as a tailwind DBX. Further, integration with leading apps like Zoom Video, Slack, three, and Atlassian are likely to expand the Dropbox paying user base over the long run.
Dropbox saw EPS growth of 86% last year and is looking great for this year too. In fact, the current growth estimate for this year calls for earnings-per-share growth of 54.6%. Furthermore, the long-term growth rate is currently an impressive 40.9%, suggesting pretty good prospects for the long haul. And if this wasn’t enough, the stock has actually seen estimates rise over the past month for the current fiscal year by about 5.9%.
Of 11 analysts offering recommendations for the stock, 6 rate it a Buy, three rates it a Hold, and two rate it a Sell. A median 12-month price target of $38.50 represents a 24.96% increase from its current level.
Anaplan Inc (PLAN)
Anaplan is positioned for gains from a robust uptick in demand for its cloud-based Connected Planning platform, which enables its users to improve decision-making across finance to supply chains on a real-time basis.
The rapid digital transformation that is taking place across all industries is driving the need for efficient planning and data-driven decision-making solutions. Moreover, current economic weakness has increased the need for companies to optimize their spending patterns. These factors favor the prospects of PLAN.
Last year, Anaplan replaced a collection of customer feedback mechanisms with the Medallia Experience Cloud. Medallia helped Anaplan add multiple feedback touchpoints across their customer journey and provided direct access for necessary employees to feedback data.
“Having access to real-time feedback allows us to make faster, more intelligent decisions across Anaplan. These decisions can include everything from how we design our platform to how we deliver everyday support,” said Anaplan Vice President of Customer Care Anne Cooper.
Anaplan will be looking to display strength during its upcoming August 31st earnings call. Revenues are expected to be $134.08 million, up 25.9% from the same period last year. Of 19 polled analysts, 17 rate PLAN a Buy and two rate it a Hold. There are no Sell ratings for the stock. A median 12-month price target of $70 represents an increase of 16% from its current price.
