In this article, we will take a look at the 10 most undervalued cloud stocks under $10 according to hedge funds. To see more such companies, go directly to 5 Most Undervalued Cloud Stocks Under $10 According To Hedge Funds.
Major Cloud players in the market, including Microsoft Corp (NASDAQ:MSFT), are facing massive headwinds amid slowing demand and spending as companies cut back on expenses amid rising interest rates. Microsoft Corp (NASDAQ:MSFT) shares fell sharply in January after investment firm UBS in a note highlighted some concerns related to the growth of the company’s Azure Cloud platform. UBS said that Microsoft Azure is entering a growth deceleration phase that would worsen in FY23/FY24. What alarmed investors was UBS concern that this growth slowdown might be related to growth maturation instead of the global macro environment.
UBS note came after Microsoft Corp (NASDAQ:MSFT) gave soft guidance for Azure’s revenue growth. Interestingly, when Microsoft posted quarterly results — which showed Azure’s strong growth in the period — several Cloud stocks, including MongoDB Inc., Datadog Inc. and Snowflake, jumped. But later, these stocks retreated as investors digested Microsoft’s weak guidance.
Microsoft Corp (NASDAQ:MSFT) isn’t the only company facing headwinds in the Cloud industry. Major players in the market including Amazon and Google are facing a slowdown in growth. A Bloomberg report on February 8 said that rate of growth for each of the three market leaders in the Cloud industry — Amazon, Google and Microsoft — fell at least 10 percentage points from the previous nine months. The report also cited Rikin Shah, founder and chief executive officer of Slower.ai, who thinks that the growth is slowing down because companies are cutting back on spending and are trying to cut costs.
The report said that most of the Cloud services charge customers based on usage. So, when times are tough, companies can easily cut back on Cloud spending by decreasing their usage. Some other important factors adding to the growth worries of Cloud companies are a rapid slowdown in some markets that were previously major users of the industry. The report said that the slowdown in the crypto market and mortgage lending industry is negatively affecting the growth in the Cloud industry.
But just because the market leaders in the industry are facing a slowdown doesn’t mean the broader Cloud industry is on a decline. In fact the opposite is true. The Cloud industry is rapidly growing as small businesses continue to migrate to Cloud platforms to decrease their costs and increase performance. A research report estimates that the global cloud computing market is expected to grow at a CAGR of 15% in the forecast period of 2023-2028 and reach $810 billion in value by 2026.
Image by Sergei Tokmakov Terms.Law from Pixabay
That’s why in this article we decided to focus on small Cloud stocks that have long-term growth catalysts.
Our Methodology
For this article we scanned Insider Monkey’s database of 920 hedge funds’ holdings and picked top 10 Cloud computing stocks that are trading under $10 and have Forward PE ratios less than the software industry’s PE ratio as of February 9. A few of these stocks have higher PE ratios but their shares are down over the past 12 months and they look undervalued based on their long-term growth catalysts we have mentioned in their respective paragraphs.
Most Undervalued Cloud Stocks Under $10 According To Hedge Funds
10. Intellicheck, Inc. (NASDAQ:IDN)
Number of Hedge Funds: 5
Intellicheck, Inc. (NASDAQ:IDN) is an identity validation company. Intellicheck, Inc. (NASDAQ:IDN) also offers Cloud-based identity services and related solutions to protect customer data in the Cloud. Year to date Intellicheck, Inc. (NASDAQ:IDN) has gained about 40% through February 9 but over the past 12 months the shares were down about 25%.
Analysts believe Intellicheck, Inc. (NASDAQ:IDN) is undervalued and can grow in the future since the company is moving towards an SaaS-based revenue model. It is operating in the identity verification market whose value is expected to reach $34 billion by 2030.
Intellicheck, Inc. (NASDAQ:IDN) beat EPS estimates for the third quarter. It concluded the quarter with cash and equivalents of $11.8 million and no debt.
As of the end of the third quarter of 2022, 5 hedge funds reported owning stakes in Intellicheck, Inc. (NASDAQ:IDN), out of the 920 funds tracked by Insider Monkey. Wilmot B. Harkey And Daniel Mack’s Nantahala Capital Management reported owning a $314,000 stake in Intellicheck, Inc. (NASDAQ:IDN).
9. Smith Micro Software, Inc. (NASDAQ:SMSI)
Number of Hedge Funds: 6
Smith Micro Software, Inc. (NASDAQ:SMSI) is a software company known for its Cloud platform CommSuite® Cloud, which helps people manage their voice and text messages. Smith Micro Software, Inc. (NASDAQ:SMSI)’s performance in 2023 has been impressive but it’s still down about 23% over the past 12 months. Analysts believe Smith Micro Software, Inc. (NASDAQ:SMSI) is undervalued since the company’s position is becoming strong in the Digital Family Lifestyle solutions domain. Smith Micro Software, Inc. (NASDAQ:SMSI) acquired Circle Media’s carrier business and gained contracts with giants like T-Mobile in the US and Sky in the UK. Smith Micro Software, Inc. (NASDAQ:SMSI) also bought Avast Family Safety business securing additional contracts with Verizon, AT&T and Wind Tre, a Hutchison property in Italy.
These partnerships can help Smith Micro Software, Inc. (NASDAQ:SMSI) develop an ecosystem of products and services and tap into the lucrative market of Internet of Things and connected home.
A total of 6 hedge funds tracked by Insider Monkey reported owning stakes in Smith Micro Software, Inc. (NASDAQ:SMSI) at the end of the third quarter of 2022.
8. Asure Software, Inc. (NASDAQ:ASUR)
Number of Hedge Funds: 7
Asure Software, Inc. (NASDAQ:ASUR) is an SaaS company that offers payroll, attendance, tax and HR solutions for businesses. Asure Software, Inc. (NASDAQ:ASUR) is known for its Human Capital Management suite, named Asure HCM, which offers Cloud-based Payroll, Tax Services, and Time & Attendance software as well as HR services ranging from HR projects to completely outsourcing payroll and HR staff. In the third quarter, Asure Software, Inc. (NASDAQ:ASUR)’s adjusted EPS came in at -$0.01, beating estimates by $0.03. Revenue in the quarter jumped 21.8% on a YoY basis to total $21.9 million, beating estimates by $0.69 million.
Asure Software, Inc. (NASDAQ:ASUR) has posted solid growth from 2020 and 2022 in terms of revenue and adjusted EBITD.
A total of 7 hedge funds in Insider Monkey’s database of hedge funds have stakes in Asure Software, Inc. (NASDAQ:ASUR). The total worth of these stakes was about $33 million. The biggest stakeholder of Asure Software, Inc. (NASDAQ:ASUR) was Gregg J. Powers’ Private Capital Management which had a $20 million stake in the firm.
7. Rackspace Technology, Inc. (NASDAQ:RXT)
Number of Hedge Funds: 10
Rackspace Technology, Inc. (NASDAQ:RXT) is a notable Cloud infrastructure company based in Texas. Rackspace Technology, Inc. (NASDAQ:RXT) has gained about 7% year to date through February 9. In November, Rackspace Technology, Inc. (NASDAQ:RXT) gained a whopping 28% after the company posted strong Q3 results that beat estimates. Rackspace Technology, Inc. (NASDAQ:RXT) said its adjusted EPS in the quarter came in at $0.10, beating estimates by $0.01. Revenue in the quarter jumped 3.2% in the period to total $787.6 million, beating estimates by $14.67 million. Cost revenue grew 5% in the period to reach $751 million. For the fourth quarter, Rackspace Technology, Inc. (NASDAQ:RXT) said it expects revenue to come between $772 million to $782 million, versus the consensus estimate of $781.17 million. Adjusted EPS in the quarter is estimated to be between $0.04 to $0.06, versus the consensus of $0.07.
However, Rackspace Technology, Inc. (NASDAQ:RXT) is in the news these days for a negative reason as well. Thousands of Rackspace Technology, Inc. (NASDAQ:RXT) customers were affected by a ransomware attack on the company’s hosted email service in December.
6. Upland Software, Inc. (NASDAQ:UPLD)
Number of Hedge Funds: 12
Upland Software, Inc. (NASDAQ:UPLD) is a Texas-based software company that offers several Cloud-based software solutions. Upland Software, Inc. (NASDAQ:UPLD)’s Cloud products include Intelligent Capture, a document capture software with Cloud-based routing and fax features; InterFax, a Cloud-based fax services; and Cimpl, a Cloud expense and inventory management system.
As of the end of the third quarter of 2022, 12 hedge funds tracked by Insider Monkey reported owning stakes in Upland Software, Inc. (NASDAQ:UPLD). The net worth of these stakes was about $31 million. The biggest stakeholder of Upland Software, Inc. (NASDAQ:UPLD) during this period was Claus Moller’s P2 Capital Partners which owns a $7.7 million stake in the company. The second biggest stakeholder of Upland Software, Inc. (NASDAQ:UPLD) was Israel Englander’s Millennium Management, with a $5.6 million stake.
Bernzott Capital Advisors made the following comment about Upland Software, Inc. (NASDAQ:UPLD) in its Q4 2022 investor letter:
“Upland Software, Inc. (NASDAQ:UPLD): The company’s promising effort to expand its go-to-market approach sputtered, and organic growth disappointed. Margins were depressed by the additional expenses and the timeframe for achieving margin targets became murkier. This uncertainty together with an unexpected capital raise,prompted us to sell.”
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Disclosure: None. 10 Most Undervalued Cloud Stocks Under $10 According To Hedge Funds is originally published on Insider Monkey.
