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 Porch Group, Inc. (NASDAQ:PRCH) 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 contractor working on home repairs, perfecting the details of a homeowner’s dream.
Porch Group, Inc. (NASDAQ:PRCH)
Number of Hedge Fund Holders: 22
Porch Group, Inc. (NASDAQ:PRCH), was launched in 2013 as a digital home improvement network service connecting homeowners to professionals. The company operates in two core segments: Insurance platform and Vertical Software.
The insurance platform offers consumers insurance solutions and warranty products to ensure their homes are protected. On the other hand, the Vertical sector provides software services to mortgage, title, and inspection companies through subscriptions. In addition, 11000+ small and large companies in the home improvement market use Porch platforms to improve their business operations and customer experiences.
Porch Group, Inc. (NASDAQ:PRCH) in its earnings press release for Q1 2024 reported revenue of $115.4 million, a growth of 32% or $28.1 million compared to the previous year. In addition, the cost of revenue grew 10% to $40 million, this growth was largely driven by improved performance of the Insurance segment including an increase in premium per policy.
Adjusted EBITDA improved $5 million compared to Q1 2023 despite weather-linked claims. Furthermore, the company successfully managed to renew its reassurance on favorable terms which will likely boost the financial confidence and improve profitability.
Moreover, Porch Group, Inc. (NASDAQ:PRCH) signed a strategic business agreement with a management consulting company, Aon Corp. Both parties entered a $30 million agreement, Aon paid $25 million payments upfront to the Porch Group and $5 million will be paid in the next four years. In addition, the company’s software business continues to roll out innovative product enhancements to strengthen client retention.
For instance, ISN (Inspection Support Network), a leading inspection brand of Porch launched around 20 core feature upgrades last year. These enhancements included the Florida wind mitigation inspection template and Flexfund, these upgrades allow customers to pay for services up close. ISN revised its inspection fee after the upgrade and increased it by 20%.
Working towards the aim of improving operations, Porch sold its insurance company, EIG, for about $12 million concentrating on leads from outside agencies, which are more lucrative considering the expenses of maintaining an internal agency. This move highlights the firm’s forward-thinking approach focused on reducing expenses and amassing profit.
Although the revenue jumped 32% in this quarter, the company reported an EBITDA loss of $16.8 million which was above expectations. The increase in loss was driven by an early Texas Spring Storm Season and a decline in Verticle software revenue due to a reduction in demand for moving services and corporate relocations.
The insurance segment margin was influenced by $36 million of net catastrophic claims which were $8 million worse than expected driven by $20 million of gross losses due to insurance claims in the wake of a Texas hailstorm that took place early in March. The company faces ongoing headwinds with challenging unexpected weather events in the wake of climate change which has introduced unpredictability in the financial performance.
In addition, there was a decrease in gross written premium in the insurance segment as the firm reduced risk through a decision of not to renew higher-risk policies.
Though the company is facing headwinds, analysts predict that in the upcoming fiscal year, the corporation will make significant strides toward cutting losses. Porch benefitted greatly from the current agreement with Aon as well. Analysts have given the stock a “Buy’’ rating and on the basis of 5 analysts’ consensus, the average price target is raised to $6.75, an upside of 222.97% from the current share price.
According to Insider Monkey’s database, 22 hedge funds held stakes in the Porch Group, Inc. (NASDAQ: PRCH) combined holdings valued at $52.43 million.
Overall PRCH ranks 4th on our list of best technology penny stocks to buy. While we acknowledge the potential of PRCH 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 PRCH 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.