3 Seriously Undervalued Nasdaq Stocks to Buy Before Wall Street Catches On
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Nasdaq stocks have undeniably a tough year in 2022. The index is down nearly 25% following a short-lived rally. This sell-off naturally creates investment opportunities, but there is a caveat to finding undervalued stocks — just because a stock declines doesn’t mean it’s undervalued.
Finding undervalued Nasdaq stocks to buy first requires to define what we mean by “undervalued.” Is it a 20% discount, 40% or more? In these market conditions, even a 15% difference between intrinsic value and observed stock price is a nice safety margin.
The following stocks are undervalued, offering the potential for great risk-adjusted returns when their true value and their public-traded prices converge.
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Immersion (IMMR)
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Immersion (NASDAQ:IMMR) is a company that develops haptic technologies in North America, Europe and Asia.
Immersion’s shares are most flat in 2022, down by 3%. Its price-to-earnings (P/E) ratio is 12, and it has a one-year target estimate of $10, an 81% upside potential.
After two consecutive years of declining sales growth, in 2019 and in 2020, 2021 has seen positive revenue growth of 15.21%.
The company has very strong net income growth in 2020 and in 2021, with figures of 126.95% and 131.14% respectively. The free cash flow growth in 2021 was phenomenal, going from a loss of $25,000 to a gain of $17.11 million.
Its forward price-to-earnings and enterprise value-to-sales ratios of 10.6 and 1.1 respectively are well below the information technology sector median values. These discounts create an investment opportunity.
Alpha and Omega Semiconductor (AOSL)
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Alpha and Omega Semiconductor (NASDAQ:AOSL) is a developer of semiconductors for various applications.
The shares are down 37% in 2022 and trade at a P/E ratio of only 2.5. The one-year target estimate is $57.33, with an upside potential of 50%.
The business looks very strong, as sales growth accelerated 41.3% in 2021 to $656.9 million. Net income growth was very strong as well, going from a loss of $6.6 million to a gain of $58.12 million. Its free cash flow also went from an $83,000 loss to $56.04 million. This is huge growth.
Turning to valuation, AOSL stock’s key financial ratios are well below information technology sector median values. The forward P/E of 2.5 for the stock is 90% lower than the value of 23.34 for the sector. This difference signals a deeply undervalued stock.