The 2020 pandemic hit many companies hard, while other companies took it as a chance to grow, seemingly unaffected by the state of the world around them. NVIDIA (NASDAQ:NVDA) came out as one of those thriving businesses and achieved gains of 122% in 2020. The company’s graphics processing units (GPUs) were present and needed for trends that accelerated exponentially due to the pandemic, boost...
The technology sector of the market encompasses many services and products: gadget makers, software developers, wireless services providers, cloud computing providers, and among many others.
With the rising trend and popularity of technology as a day-to-day need and the constant pursuit of improving what is offered in that section of the market, it is not hard to find a tech company that’s worth investing in.
To be of assistance, here are some tips you can take into consideration when looking for one:
Analyzing tech stocks
Before starting, you should know that tech companies tend to find themselves in one of two categories regarding the actual focus of their services:
- Hardware: Physical devices, like computers and smartphones. They tend to be sold just like any non-technological product as a one-time purchase.
- Software: Non-physical programs tend to be run by hardware, such as operating systems, databases, security software and more. A recent trend has been for software companies has been to offer their products as a software-as-a-service model, meaning that users need to pay for subscriptions instead of making one-time-purchases.
In the end, both are reasonable options for investment. It mostly comes down to personal preference, but knowing the difference might greatly benefit you along the way.
Once you’ve found one company that feels might have potential, now comes the analysis portion of your research.
Unlike what you might expect, especially if you are coming from other non-technological investments, many tech companies in the market aren’t profitable. The genuinely profitable ones are typically the more mature and better-established tech companies in the market. Regardless of whether it is profitable or not, there is still a way that you can evaluate each one of your options.
For those companies that make profits, your best option to calculate their price-to-earnings ratio. Divide their stock price by their per-share earnings, and you get a value that tells you the company’s current profits. The bigger the digit, the more value it is being placed on its growth. A company with a high price-to-earnings ratio is an excellent choice for your investment.
On the other hand, the price-to-earnings can’t help you in any way with any companies that don’t produce profits. It is in those cases that you should be looking for companies with solid growth opportunities.
When does a tech-company show any kind of growth opportunity? By being efficient.
Any company with a solid future should show increases in efficiency over time. If a company’s being efficient, it reflects on their ability to make constant sales and how much of their marketing strategies are necessary to close deals.
If a company is not making a decent amount of sales or its marketing costs are overcoming those of their actual earnings, that company is probably not worth investing in.
However, if your company shows the opposite, then you’ve found an excellent opportunity for an investment.
In short, when dealing with tech stocks, your priority should be in finding companies with significant growth prospects. If you are confident that you already found one, you can go ahead with your investment.
Some tech stocks for you to invest in
Many of today’s most prominent companies belong to the technology sector, so you are most likely making a good choice by choosing to invest in them. Here are some of the biggest tech stocks that are currently being dealt with in the market for you to consider:
- Cisco Systems
Tech stocks during the 2020 pandemic
The COVID-19 pandemic has had a series of mixed impacts and influences on the tech market as a whole.
Companies such as Amazon have thrived since many people have shifted their shopping habits towards the world of e-commerce. Similarly, Microsoft and Intel have had a surge in sales since people need to expand their home computer equipment to better suit their home office environment. Even Netflix, which already had a large customer base, has had an increment in their user base as people are now in need of entertainment content that users can easily consume at home.
However, other companies haven’t been as lucky.
Cisco Systems, which mainly deals in providing services meant for any business’s headquarters, has had low sales now that companies both aren’t in such a need to pay for those services anymore and are now in need to more closely manage their working costs.
Even Facebook has had a hard time dealing with the pandemic since most of its revenue came from other businesses ’ ads. Since companies such as travel agencies had a strong presence and influence in online ads overall, Facebook ads (and those offered by different online services) aren’t as effective and profitable today.
Regardless of the pandemic’s current status, it is still too early to know how these companies’ long-term trajectories will be. Will the companies facing a surge in earnings be able to maintain said numbers post-pandemic? Will those who face a terrible time recover by that time as well?
When choosing a potential tech investment today, try and go for a company that shows growth prospects overall. Now try to picture how that growth prospect could be affected by the pandemic right now and how it could be affected once it has long ended.