You might be surprised to hear this, but the share price you pay for a stock is meaningless. The market value of any publicly traded company is calculated by taking the number of shares it has outstanding and multiplying it by the current share price. Some companies have a few million shares outstanding, while others may have tens of billions.
So the stock price in strict dollars-and-cents terms doesn’t really tell investors much about the quality of an investment. Context is needed. It’s a company’s market capitalization that is the true “price” you are paying. That’s why penny stocks, even with their ultra-low share prices, can actually be incredibly risky investments.
Still, there are lower-priced stocks that do have real potential to succeed. Here are two top technology stocks you can buy for under $20 a share that have strong business models and long-term growth prospects.
1. Coupang: An e-commerce powerhouse in East Asia
Trading at $16.45 per share, Coupang (NYSE: CPNG) has lost 66% of its market cap since going public in early 2021. Investors soured on the South Korean e-commerce company after seeing it report negative free cash flow quarter after quarter. For example, through the first nine months of 2022, Coupang burned through over $700 million in free cash flow as it used the funds to build out its vertically integrated e-commerce network.
But it’s these investments that show management is smart and working effectively to maintain Coupang’s fast growth. In 2022’s third quarter, revenue was up 27% year over year on a currency-neutral basis to $5.1 billion. And that growth came on top of a Q3 2021 during which revenue grew by a cool 44% year over year. The company is also starting to inch toward profitability, with gross margins up by 8 percentage points last quarter to 24.2% and net income hitting $91 million. With $2.9 billion in cash on the balance sheet, Coupang has the financial flexibility to continue spending on growth for many years at its current rate before it would need to raise more money from investors or take on debt.
Coupang has been gaining market share in South Korea for many years because it offers faster delivery times to customers than its competitors. It’s the only e-commerce provider in the country with its own warehouses and delivery drivers, giving it an advantage similar to the one Amazon has in North America. According to estimates by market research firm Euromonitor International, the e-commerce market in South Korea will grow to a value of $291 billion in 2025. It is impossible to predict how much of that will flow through Coupang’s marketplace, but given that its trailing 12-month revenue is only $20 billion, the company has a huge growth opportunity in front of it.
At a market cap of $29 billion, I think Coupang is a great bet for investors right now.
2. Olo: The software backbone for restaurant chains
Olo (NYSE: OLO) is a software-as-a-service (SaaS) provider for restaurant chains. Its software modules help companies like Portillo‘s, Five Guys, and Wingstop manage orders, menu prices, and payments from all the different payment tools customers use these days. With 84,000 restaurants using its platform and 2 million orders processed daily, Olo now provides the software backbone for a large chunk of the restaurants in the United States.
And these numbers are only growing. Its active locations were only 35,000 in 2018, while its average revenue per unit (ARPU) grew at a 29% annual rate from 2018 through 2021. So not only are more companies signing up for Olo, but its existing customers are also increasing the number of its software products that they use.
Its ARPU hit $558 in the third quarter of 2022, up 15% year over year. Unit and ARPU growth have translated to strong revenue growth for Olo, with sales going from $31.8 million in 2018 to $176 million for the 12 months ending in September 2022.
So far, that revenue growth hasn’t translated into much on the bottom line. Olo had a net income of negative $40 million over the past 12 months. But with strong gross margins of around 70%, Olo has the unit economics to start really improving its net margin once it stops investing so heavily in its efforts to grow its customer base.
Trading at $8.59 per share, Olo stock is down by more than 70% since its initial public offering in early 2021, which was also right around the time Coupang went public. Today, Olo has a market cap of $1.4 billion, which is a tad expensive considering its trailing 12-month revenue was just $176 million. However, given the company’s excellent track record of growth and its high gross margins, I think the stock is still set up for success if you hold it for the long haul.
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Brett Schafer has positions in Coupang. The Motley Fool has positions in and recommends Coupang and Olo. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
