The tech-laden Nasdaq-100 Technology Sector index has been battered and bruised badly in 2022, crashing nearly 36% so far thanks to multiple headwinds. But investors shouldn’t forget that there is massive growth potential in technology stocks, as companies in this sector operate in disruptive or fast-growing markets that could help shape the future.
Matterport (NASDAQ: MTTR) and Sierra Wireless (NASDAQ: SWIR) are two such technology companies that have terrific long-term potential. Let’s look at the reasons why these two stocks could go parabolic, with their stock charts bending upward like the right side of a parabolic curve.
Matterport stock has been brutally hammered on the market in 2022, dropping 80% as investors have panicked at the slowdown in the company’s growth rate.
In the first quarter of 2022, Matterport’s revenue increased just 6% year over year to $28.5 million. The company also reported an increase in its adjusted net loss to $0.10 per share, from $0.01 per share in the prior-year period. Though the company’s results exceeded expectations, the weak year-over-year comparisons spooked investors, as Matterport operates in a fast-growing industry that has massive long-term potential.
Matterport’s hardware and software solutions enable customers to create digital twins of real-world objects. Digital twins are precise three-dimensional (3D) virtual representations of physical objects in the real world. They may be anything, such as an airplane, a factory, a car, or real estate. The digital twins of these real-world objects not only help their operators analyze actual performances but also assist in predicting how the objects could perform in the future with the help of sensors attached to the objects.
Not surprisingly, the demand for digital twins is expected to jump big time in the long run. According to Mordor Intelligence, the global digital twin market could generate $61 billion in revenue by 2027 as compared to $10 billion last year. So, investors shouldn’t be writing off Matterport based on its near-term performance, especially considering that the company is setting itself up to take advantage of a huge end-market opportunity with its variety of solutions.
Matterport has a wide range of offerings, from free smartphone applications and mounts for smartphones to 360-degree cameras and 3D cameras. It also provides professional services to capture 3D spaces for businesses spread across various industries such as real estate, retail, architecture, engineering, and facility management, among others.
More importantly, Matterport’s offerings are in solid demand, as evident from the terrific growth in its subscriber base. The company had 562,000 subscribers at the end of the first quarter, up 70% over the prior year. Though paid subscribers numbered only 58,000, it is worth noting that Matterport is witnessing an improvement in its free-to-paid conversion rates over the past year.
What’s more, the company is building a sustainable stream of revenue, which is evident from the growth of its subscriber business. Matterport’s subscription revenue had increased 24% year over year in the first quarter to $17.1 million and accounted for 60% of the company’s top line. The company expects its subscription revenue to increase between 31% and 34% this year, and it won’t be surprising to see it sustain such impressive growth in the long run thanks to the fast-growing market it is serving.
Not surprisingly, Matterport’s earnings are expected to increase at an annual pace of 26% for the next five years. That’s why investors looking to buy a potential growth stock on the cheap right now should take a closer look at Matterport since it could go parabolic thanks to the digital twin market.
2. Sierra Wireless
Sierra Wireless sells chips that power Internet of Things (IoT) applications. The company’s terrific results in recent quarters have helped Sierra stock fly higher amid the broader stock market sell-off.
Shares of the chipmaker have gained 20% this year. The stock remains dirt cheap despite these gains, as evident from its price-to-sales ratio of 1.5, which is lower than the S&P 500‘s multiple of 2.35. Buying Sierra stock at its current valuation looks like a no-brainer given the pace of its growth.
Sierra’s revenue for the first quarter of 2022 had shot up 60% year over year to $173 million, driven by the robust demand for its chips. The company delivered an adjusted profit of $0.23 per share, compared to a loss of $0.26 per share in the prior-year period. Sierra’s guidance indicates that its impressive growth is here to stay, with its revenue expected to jump 26% year over year to $167.5 million at the midpoint of its guidance range.
What’s more, Sierra management says that it has a strong order backlog that’s more than what it can fulfill. That’s not surprising as the demand for various IoT solutions, such as connectivity modules, managed connectivity, routers, and antennas, that Sierra sells is booming. For instance, the number of low-power wide-area (LPWA) network connections are expected to jump from 330 million in 2020 to 4 billion in 2030, presenting a solid opportunity for Sierra to grow its sales in this segment.
In all, with the global IoT connectivity market expected to clock 20% annual growth through 2028, Sierra Wireless is sitting on a tremendous secular growth opportunity that should help it keep up its nice top- and bottom-line growth. As such, Sierra seems built for more upside following its solid showing so far in 2022. Investors who haven’t bought this growth stock so far should consider doing so, as it is still cheap and has the potential to go parabolic thanks to the IoT opportunity.