We recently compiled a list of the 10 Best Technology Penny Stocks to Invest in Now. In this article, we are going to take a look at where Blend Labs, Inc. (NYSE:BLND) stands against the other technology penny stocks.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of a person’s hand signing a mortgage document.
Blend Labs, Inc. (NYSE:BLND)
Number of Hedge Fund Holders: 24
Blend Labs, Inc. (NYSE: BLND) is a cloud-based software platform that operates and empowers a digital interface between consumers and financial service firms. It provides cloud-based solutions to the firms in finance sector. Blend Platform and Title365 are the two core segments of the company’s software operation.
A range of products are available through the company’s Blend Builder Platform, which enables digital-first customer journeys for credit cards, deposit accounts, auto loans, mortgages, home equity loans, and lines of credit. Title365 was acquired in June 2021 with a deal of $422 million, the subsidiary provides professional and consulting services, as well as title search procedures for title insurance policies, escrow, and other closing and settlement services.
According to the Q1 2024 performance highlights, Blend Labs, Inc. (NYSE: BLND) reported revenue of $34.95 million comprising Blend Platform revenue of $23.8 million and Title365 segment revenue of $11.1 million. Mortgage suite revenue decreased by 15% year over year, but the company stabilized and outperformed analyst expectations due to a 29% increase in Consumer Banking Suite revenue of $6.7 million.
In addition, Professional services revenue increased 21% year-over-year to $2.1 million in q1 2024. The company reported an EPS of $-0.06 marginally beating the expected EPS of $-0.07.
As of March 31, 2024, Blend had cash, cash equivalents, and marketable securities, including restricted cash, totaling $135.3 million with total debt outstanding of $140.0 million in the form of the Company’s term loan, which was repaid in full in April upon the investment from Haveli. The investment has paved the way for the company to save an expected $18 million in annualized interest expenses boosting the path to generate positive cash flow soon.
The establishment of a strategic partnership with Haveli Investments proved to be a cornerstone that aided the company in improving its cash flow and acquiring debt-free status. This investment is poised to further strengthen the long-term business relationship that is expected to enhance the company’s product and technology development, go-to-market objectives, and operational framework.
In addition, the company is expanding its customer base and has made progress in deploying new customers, including a partnership with the Navy Federal Credit Union. This integration will enable members to open new accounts easily, with an enhanced user interface that allows identity verifications, new account funding, and membership confirmation.
Despite improvements in revenue and a decrease in operating costs, the company still has a negative free cash flow of $1.3 million in Q1 2024 and is yet to reach profitability. The macroeconomic challenges, high interest rates, and inflation can have a potential effect on customer decisions and market dynamics.
Furthermore, there is an ever-growing market competitiveness in the mortgage and consumer banking sectors. Therefore, the company needs to keep innovating and improving its platform’s technology to stay relevant, and that may risk the company’s broader operations. Regulatory changes and compliance requirements are additional headwinds that can pose a risk to the company’s operational strategies.
According to Insider Monkey’s database of hedge fund sentiment, 24 hedged funds held stakes in Blend Labs, Inc. (NYSE: BLND), and Millennium Management Fund run by Israel Englander had the largest stakes with 4.73 million shares valued at $15.39 million.
Overall BLND ranks 3rd on our list of best technology penny stocks to buy. While we acknowledge the potential of BLND as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BLND but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.