Why UiPath, Docusign, and Alphabet look like bargains at current levels.
Finding bargains in the technology sector is getting tougher, given how well the stock market (especially tech stocks) has performed since the start of 2023. Technology stocks have been driving this latest market rally, as evidenced by the roughly 80% rise in the Nasdaq 100 Index during that time. That strong performance is making many of these stocks more expensive to buy right now.
But not all tech stocks are joining the rally… at least not yet.
There are at least three cheap technology stocks with growth potential that investors can consider buying right now: I currently own all three of these stocks, and here's why I'm attracted to them:
1. UI Pass
UiPath (PATH) had a strong stock price until the end of last year, but it has recently become an undervalued stock after announcing disappointing earnings guidance and the resignation of its CEO.
This artificial intelligence (AI) automation software company helps businesses automate routine tasks like data entry and understand and process documents like invoices. The company's platform tracks automation performance metrics and performs quality assurance, while newer solutions such as its Intelligent Document Processing (IDP) product can extract, interpret and process data from different types of documents, digital or handwritten.
The company has been successful in growing within its existing customer base, with a dollar-based net customer retention rate of 118% last quarter. However, despite some recent partnerships, it has struggled to attract new customers. This has been attributed to competition from the likes of Microsoft and the company's new AI product, Copilot, but it's worth considering that AI is still relatively new, so many organizations are still planning their AI strategy and how to most effectively implement it.
So the software provider is more likely to be part of the second phase of AI growth, rather than an early beneficiary. Meanwhile, the recent sell-off has left UiPath shares cheap, trading at less than 5x forward price-to-sales. Given the $1.9 billion in net cash and marketable securities on the balance sheet, the stock trades at just 3.6x enterprise value to forward sales, a decidedly cheap price for a software company that continues to grow at a healthy clip and has great potential for the future.
PATH PS Ratio (Forward) data by YCharts
2. DocuSign
While UiPath has been successful in expanding its customer base, it has struggled to attract new customers, while Docusign (DOCU 1.54%) is having the opposite problem: The e-signature company has been growing its customer base at a healthy clip, adding 50,000 customers last quarter, but its net dollar retention rate for the quarter was 99%, suggesting it is struggling to grow its existing customer base.
While the downturn in markets like real estate, where electronic document signing is common, certainly had an impact, and demand was even front-loaded when the COVID-19 pandemic hit, the company has been looking to innovate and move to a platform business. The company has added a number of new features and solutions, and plans to integrate its e-signature and contract lifecycle management (CLM) products into a new intelligent contract management (IAM) solution.
The stock is undervalued, with a forward price-to-earnings (P/E) ratio of less than 16 and an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiple of 10.4. Note that the latter metric takes into account net cash balances and excludes non-cash expenses.
DOCU PE Ratio (Forward) data by YCharts
Overall, Docusign stock looks cheap given the potential of its IAM solutions and plans to transition to a platform company, which is why I'd buy during the recent share price dip.
3. Alphabet
Meanwhile, Alphabet (GOOGL -1.76% GOOG -1.84%) shares recently hit an all-time high, but at just 24 times forward earnings, the stock is among the cheapest mega-cap tech stocks.
GOOGL PE Ratio (Forward) data from YCharts
The company dominates Google search and aims to incorporate AI summaries into search results when it's most appropriate. Over time, Alphabet will find new ways to monetize its AI search results with new ad formats and should begin to make money from the 80% of search results that don't include ads. This represents a long potential avenue for growth.
Meanwhile, the company's Google Cloud services are already benefiting greatly from the increased use of AI: This business, which has high fixed costs, recently became profitable and is on track to become significantly more profitable as it scales. At the same time, the company's YouTube business is one of the best and most profitable video services and is just starting to monetize short-form video.
All things considered, Alphabet appears to be a cheap tech stock worth buying at current levels, despite having recently reached an all-time high.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Geoffrey Seiler has invested in Alphabet, Docusign, and UiPath. The Motley Fool has invested in and recommends Alphabet, Amazon, Apple, Docusign, Microsoft, Nvidia, and UiPath. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
