So let’s take a closer look at a few companies from my list. One of these I’ve already bought, but remain on my watchlist as I may be looking to buy more.

Nvidia

Nvidia (NASDAQ:NVDA) has been on my radar for a while, but I’m yet to buy. The surging share price has been so pronounced this year that finding the right entry point has been challenging.

The stock looks expensive on near-term valuation metrics, but the PEG ratio (price/earnings-to-growth) of 1.39 remains attractive — this ratio takes into account expected earnings growth over five years.

It’s also worth considering how far ahead Nvidia is versus its competition in the data centre/AI space. Nvidia’s data centre division registered $14.5bn in revenue in Q3 alone. Meanwhile, Intel and Advanced Micro Devices are forecasting data centre revenue of $1bn and $2bn respectively for 2024.

Of course, there are risks, including the impact of US sanctions on China and Nvidia’s reliance on Taiwan Semiconductor Manufacturing Company for production.

I’m still undecided whether this is the right entry point. The stock however, could continue to surge.

AppLovin

AppLovin (NASDAQ:APP) is a software company that helps its clients maximise advertising revenue. It operates in a growing industry and has experienced impressive revenue growth over the past 12 months — and its expected to continue.

One concern is the impact of forecasted recessions over the coming months on advertising demand. However, the most attractive thing about AppLovin is its expected growth over the medium term — the next three to five years.

While the stock’s forward price-to-earnings is an expensive 43 times, its PEG ratio is a phenomenally attractive 0.68. That suggests AppLovin’s growth potential is under appreciated.

I’ve recently added the stock to my portfolio, and I’ll be buying more.

Yalla Group

I’ve been reporting on Yalla (NYSE:YALA) for almost two years. Every time I covered the stock, it looked more appealing as net cash grew and its enterprise value fell to incredibly attractive levels.

However, it lacked momentum at the time, so I didn’t buy despite intending to do so on a number of occasions. Growth has also slowed since the pandemic as the company pivots towards mid-to-hard-core gaming.

Like many other investors, I’ve been waiting for evidence that its R&D spending is starting to pay off. There was some sign of this in Q3 when revenue came in above estimates at $85m, and up on previous quarters.

While the stock has pushed up in recent months, I’m still waiting for more evidence that the company can really grow into new sectors before I buy.

If it can, I think this is a hugely exciting investment opportunity. It’s been profitable since listing and now holds more than half its market value in cash.

The post Are these the top stocks to buy for explosive growth? appeared first on The Motley Fool UK.

Shares in MENA-focused social media firm Yalla (NYSE:YALA) have made significant gains this year, but still look incredibly cheap by several metrics. Let’s take a closer look.

Recent outperformance

Yalla’s shares once commanded a high of $40 before the Covid era tech bubble burst. However, at present, the stock’s value stands at $5.20, notably below its IPO price of $7.50 back in September 2020.

Despite its profitability and consistent steady growth, Yalla, which operates a voice-centric social platform and a portfolio of mobile games, seems to have faded from investors’ radar. Remarkably, even in the face of stable financial performance, the stock has struggled to gather momentum. Interestingly, even a very strong Q2 showing failed to trigger a surge in the share price.

Notably, in Q2, the company reported a substantial year-on-year net income increase of 32.4% and a 34.8% quarter-on-quarter rise to $33.8m. This was fuelled by incremental revenue growth and a reduction in costs.

Development programme

Investors might have harboured apprehensions regarding Yalla’s strategic venture into new markets, particularly the mid-to-hard-core gaming segment. This strategic diversification naturally implies a commitment to research and development investments to establish a foothold in this domain.

Surprisingly, these expectations have not significantly impacted profitability up to this point. Notably, Yalla demonstrated adept cost management, as evidenced by a noteworthy 14.8% reduction in technology and product development expenses during the second quarter of 2023, resulting in an expenditure of $6.6m.

Valuation

On a TTM basis, we can see that Yalla trades at 10.15 times earnings. Not only does that make it one of the cheapest technology stocks, but it’s also cheaper than the majority of the index. It even trades below several cyclical stocks, including banks.

In the following chart, we can also see that Yalla trades at phenomenal discount versus social media giant, Meta, technology leader, Alphabet, and dating app owner Match Group. These comparisons are made on P/E basis for the last full year.

Nonetheless, the disparity becomes even more conspicuous when we look at the EV-to-EBITDA ratio. This discrepancy primarily stems from Yalla’s substantial cash reserves, which significantly augment its valuation dynamics.

Impressively, by the close of the second quarter, the company boasted an impressive $510.5m in cash holdings, marking an increase from the $471.4m reported at the end of Q1. This robust financial position translates into Yalla’s remarkable EV-to-EBITDA ratio, hovering slightly above two.

Yalla’s valuation suggest it offers little growth opportunities, but that’s not true. And it’s movement into the mid-to-hard-core gaming segment could soon deliver stronger financial gains following the release of Merge Kingdoms.

While no stock is without its imperfections, it’s worth noting that Yalla shares might benefit from more well-defined revenue growth. However, the remarkable value proposition it presents, coupled with intriguing growth potential, makes it a compelling consideration for investors.

There may also come a time when investors expect a dividend.

The post Is this the cheapest tech stock on the NYSE? Here’s what the charts say appeared first on The Motley Fool UK.

Let me tell you why.

What is Yalla?

In 2022, Yalla became the largest MENA-based online social networking and gaming company in terms of revenue. The Dubai-based tech firm rose to prominence during the pandemic with its voice-centric communication platform and soft gaming offer.

Valuation

The company’s market-cap is around $583, and with $407m in cash and cash equivalents at the end of Q4, Yalla has an enterprise value of around $176m. To put that into context, in the last two years, Yalla has recorded net income of around $80m.

The firm currently trades with an EV-to-EBITDA ratio of just two, far below its sector (communications) median of 9.6. Yalla’s huge cash and cash equivalents positions also provides management with flexibility on growth plans, share buybacks and dividends — it’s something of a safety blanket which many young companies just don’t have.

To me, Yalla is clearly undervalued.

New growth push

Yalla is something of a company in transition. That’s because its two most successful apps, Yalla Chat and Yalla Ludo, are maturing and there may be better growth prospects in other parts of the market. That’s why Yalla is investing in mid-and-hard-core gaming.

However, the company is doing this without taking on debt, which is highly useful with interest rates pushing higher and higher.

That’s not to say the transition isn’t weighing on performance. Yalla’s Non-GAAP margin fell from 40.8% in Q4 of 2021, to 29% in Q4 of 2022. That’s a considerable fall, although it’s clear this is still a strong margin.

R&D spending and new hires — predominantly in research positions — can be seen in cost growth. Total costs came to $60.1m in Q4 of 2022, versus just $49.3m in Q4 2021.

For some analysts, this is a necessary development despite user numbers in mature apps continuing to grow over the past year. During the pandemic, the company registered double and even tripled digit growth. In a post-pandemic world, it seems the company need to keep innovating.

Where next?

Yalla only listed in September 2020 and was priced at $7.50. The company raised around $140m during the IPO. But before long, the stock was trading for $39 as platform usage surged and the pandemic stoked retail investment.

I believe the stock will push upwards from the current $3.90. We won’t see the results of the company’s transition overnight, but I don’t expect to see the company’s profitability eroded much further by rising costs in the near term. Trading at such low multiples, with a huge cash pile, I think Yalla is a buy.

The post Are Yalla shares hugely undervalued? appeared first on The Motley Fool UK.

A transition

Last week, Yalla reported that non-GAAP net income had fallen from $27.5m in the fourth quarter of 2021 to $21.7m in the last quarter of 2022. This decline may concern some investors, but, for me, it’s purely reflective of the fact that Yalla is a company in transition.

The stock soared during the pandemic, reaching $39 a share — 10 times higher than the current share price. Pandemic-induced restrictions engendered a surge in social media use, and Yalla’s chatting and casual gaming platform gained hugely.

In a more challenging macroeconomic environment, revenue growth is slower and income has fallen. But we can largely attribute lower net income to higher R&D spending as the company embarks on a transition to leverage its 32m users and enter the mid-to-hard-core gaming market.

Yalla launched an internal studio for R&D in Q4, after introducing its first hardcore game, Merge Kingdom, in Q3.

Low risk

Why do I think this is a low-risk transition? Well, Yalla has impressive income generation and solid cash reserves.

The company’s flagship applications, Yalla (chatting services) and Yalla Ludo are mature parts of the business, generating reliable revenue throughout the year. Some analysts think growth may have slowed here, but users numbers are continuing to grow.

In its Q4 report, Yalla stated that quarterly paying users across the business increased from 8.4m to 12.4m, representing an impressive 47.8% YoY growth.

The second reason is its cash reserves. At the end of Q4, Yalla said it had more than $407m in cash and equivalents. That’s up from $57m the year before.

That’s significant because the company currently has a market value of $539m, putting the enterprise value at $122m. For a firm that has delivered about $80m in profit for two years in a row, that’s not particularly high.

These sizeable cash reserves and solid income streams make Yalla look like a relatively low-risk investment. And right now, that’s particularly important with the levels of volatility we’re seeing across the market.

Of course, there are concerns that the new gaming apps won’t deliver the success of Yalla and Yalla Ludo. There is no guarantee that new games will be successful.

However, I believe the chances are improved by the size of the existing user base and positive trends in the Middle East. The region is among the fastest growing worldwide while GCC citizens have seen rapid improvements in living standards in recent years.

Moreover, this strong financial positions provides Yalla with plenty of flexibility with regards to share buybacks and dividend payments — both of which would benefit shareholders.

Because of the above, I’m looking to add Yalla shares to my portfolio when I have the funds available. Hopefully, I can snap up shares close to the current price — $3.66 — even if the pound remains weak.

After all, like other investors, I’m always on the lookout for top quality companies to add to my portfolio.

The post Investors should consider Yalla Group, a forgotten tech stock with plenty of cash! appeared first on The Motley Fool UK.

Today, I’m looking at Yalla Group (NYSE:YALA) — a leading voice-centric social networking and entertainment platform in the Middle East and North Africa. It’s a stock I’ve been keeping an eye on for some time, and one that I’m finally adding to my portfolio after three consecutive quarters of revenue growth.

What makes Yalla cheap?

Yalla is a profit-making growth stock. Earlier this week, it announced revenue for the third quarter was $80.1m, the first time quarterly revenue has surpassed $80m. However, profit fell to $24.4m, down from $25.3m in the third quarter of 2021, although this was largely due to more spending on customer acquisition.

But what really interests me about this one is its metrics. The stock has a forward price-to-earnings (P/E) of 6.3 versus a communications sector average of 15. It has a price-to-book ratio of 1.4 versus the sector median of 1.71.

And the really attractive bit comes when we look at enterprise value (EV), which measures a company’s total value, taking into account the firm’s net debt or cash position. The thing is Yalla Group had cash and cash equivalents of $391.2m at the end of Q3. The difference between its market-cap $610m and cash and cash equivalents is only $220m.

As a result, Yalla Group looks seriously cheap when we looking at EV-based metrics. The stock has a EV-to-EBITDA ratio of just 2.2 versus a sector average of 9.7. It also has an EV-to-sales ratio of 0.72 versus a sector median of 1.95.

Steady growth

While many soft tech companies are struggling, Yalla is continuing to grow. Revenue has now risen for three consecutive quarters after a small downturn at the end of the pandemic.

The company’s revenue, and share price, surged during the pandemic as Covid restrictions pushed people towards the virtual. But Yalla’s 2022 growth is testament to the strength of its product and its market positioning.

In fact, its worth noting that while the global economy is going into reverse, the Middle East isn’t. World Bank economists forecast that the Middle East and North Africa (MENA) region will grow 5.5% in 2022 — the fastest in six years.

I appreciate that there’s a matter of competition. Yalla has found something of a niche so far, but social media giants could well move into this space. And that’s something I’ll keep an eye on.

But, for now, I’m impressive by Yalla’s 2022 performance and I’ll be adding this stock to my portfolio.

The post Looking for cheap shares? This stock’s EV/EBITDA is just 2.2! appeared first on The Motley Fool UK.

P/E ratios aren’t always comparable. For example, growth stocks will trade with a higher ratio than value stocks because they’re valued on future profitability.

But in Yalla (NYSE:YALA) — a Middle East-focused social media and gaming firm — I’ve found a growth stock with a P/E ratio of just 9.7. By comparison, Meta has a P/E ratio of 15, and that’s among the cheapest in the sector.

So let’s take a closer look at Yalla, and why I’d buy this stock.

Still in growth mode

Yalla shares shot up after their listing in late 2020, reaching $40 a share in February 2021, up from $7 in November 2020. The company was demonstrating impressive growth during the pandemic, but missed its Q2 targets in 2021, and the share price plummeted.

The pandemic definitely contributed to the growth of the social networking and gaming business. But recent quarterly updates have highlighted that the business is continuing to grow after the pandemic.

Revenue for the quarter ending June 30 came in at $76.1m, nearly 10% above analysts’ estimates, and above the $72.3m achieved in the months until the end of March. Net income also rose to $20.4m, up from $18.4m achieved a year ago.  

Growth was attributed to the increase in the number of monthly active users (MAUs) and paying MAUs. There was a 35.6% year-on-year increase in MAUs to 29.9m and a 65.3% year-on-year rise in paying MAUs to 10.6m.

Approximately $52.7m was generated from chatting services, while gaming revenue came in at $23.3m. 

Healthy balance sheet

I’m not worried about Yalla’s burn rate, because there isn’t one. The Dubai-based company has $384m in cash and equivalents, which is huge considering the market-cap is around $650m. Cash and cash equivalents actually grew year-on-year from $351m in 2021. Total current assets, including cash and cash equivalents, is $426m.

Yalla has said it is looking to refine the quality of its products while expanding its market. But that doesn’t appear to be having a negative impact on revenue or profitability. And that’s certainly a positive.

The huge cash balance is also particularly important right now as interest rates rise around the world. Higher interest rates increase the cost of growth, but this is something Yalla doesn’t need to worry about.

Risks

There are always risks when investing. With Yalla, it’s clear this relatively young tech company has found a niche and is expanding from there. But there’s no guarantee that larger tech firms won’t enter the market, especially when considering the profits Yalla is generating so early on.

And as economies become increasingly open, with restaurants and cafes getting back to normal, the environment is likely getting more challenging for it to deliver growth.

Despite this, I’m bullish on the stock. I’ve said the US market is almost uninvestable for me right now, given the weakness of the pound, but I’d make an exception for Yalla and its attractive valuation.

The post A growth stock with a price-to-earnings ratio of just 9.7! Should I buy Yalla? appeared first on The Motley Fool UK.

Growth and technology stocks can appear much more expensive as they’re valued on future growth expectations. I actually had no exposure to such stocks at the beginning of the year. Generally I thought they’d become far too expensive.

Tesla is the perfect example of this. At it peak share price, it had a price-to-earnings (P/E) ratio of around 230. That means it would have taken 230 years for the company’s profits to cover the value of its shares.

But as prices fall, growth stocks are becoming more attractive to me. Here are my top picks to buy before June.

NIO

NIO (NYSE: NIO) fell 8.5% yesterday, but other growth stocks dropped too. The Chinese EV manufacturer is on an impressive growth curve, with revenue increasing at a similar rate to market leader Tesla. The Shanghai-based company has a market cap of just $22bn, a fraction of Tesla’s $650bn.

While NIO doesn’t expect to become profitable until 2024, other metrics, such as price-to-sales (P/S), highlight why I think NIO is great value compared to its peers. The stock has a P/S ratio of around 4, versus 13 at Tesla. Lucid and Rivian have P/S multiples above 100.

Lockdowns in China might hurt growth this year. That’s definitely one concern. However, I like the brand, its EV offering, and its unique battery swapping technology.

Yalla

Yalla (NYSE:YALA) isn’t a typical growth stock as its already trading with fairly low multiples. It has a P/E ratio of just 7.7 and a P/S ratio of 1.8. The Middle East/North Africa-focused social media and gaming platform saw revenues rise rapidly during the pandemic, but growth has slowed. The stock plummeted in line with other growth stocks, but also as investors saw growth slowing.

Q1 2022 was its most successful quarter to date as revenue rose year-on-year from $67.6m to $72.3m. Average monthly active users (MAUs) reached 29.2m during the period — a 55.3% increase from Q1 of 2020.

Yalla has big plans for expansion and the cash to make it happen. For example, it has recently launched the region’s first-ever social metaverse app, WAHA. 

The slowing growth curve isn’t great to see, but I think this stock looks like great value. Investors will be keen to see whether growth can be sustained beyond the core pandemic years.

Darktrace

Darktrace (LSE: DARK) stock has bounced up and down since it was listed last year. The cyber-defence firm saw its share price fall last week as one of its executives was named in a legal row concerning Autonomy’s 2011 sale to Hewlett Packard. 

However, at around 330p, I think Darktrace looks like great value. Demand for cyber-security is on the rise amid increased global competition following Russia’s invasion of Ukraine. Revenue is rising and at today’s price, Darktrace has a P/S ratio of around 8. This is considerably cheaper than its peers, such as CrowdStrike at 23.

There’s plenty of concern about the competitiveness of the sector. But I see Darktrace continuing to grow amid increased demand for its services. It’s also trading near its all-time low.

The post My top growth stocks to buy before June! appeared first on The Motley Fool UK.

However, that doesn’t mean I’m ignoring growth stocks. In fact, I’ve been digging deeper to find some with great long-term prospects for my portfolio.

Oriental Culture Holdings

I’ve had Oriental Culture (NASDAQ: OCG) in my watchlist for a while. As I write, the stock is trading below its IPO price, but this belies a strong showing in 2021. In its full-year results, released on Monday, it said that operating revenues increased 115.6% to $37.6m in the 2021 fiscal year. Gross profit rose to $35.2m in 2021, up from $14.8 million in 2020, representing 137.7% growth.

The company is a leading online service provider for the trade of artworks and collectibles. It experienced its impressive growth on the back of a resurgent Chinese market. In 2021, more revenue was generated from fine art sales in China than in the US, according to Artron, a Chinese art sector group. Revenue from fine art sales in China grew 43% to $5.9bn in 2021, with 63,400 pieces sold. The company is also moving into the non-fungible token space, which could prove lucrative in the future.

While I feel this is a great long-term pick for my portfolio, it’s worth considering the impact of continued Covid-19 lockdowns in China on the country’s art market.

Netflix

Netflix (NASDAQ: NFLX) tanked in April after the subscription service released disappointing Q1 figures. The report showed that subscribers are leaving Netflix’s streaming services in record levels and investors subsequently rushed for the exits. The stock fell 40% in a single day and is currently trading around $200 a share. That’s a massive fall from the $700 it was trading at in November.

Despite this, the company remains profitable. Net income during the quarter ended March 31 fell 6.4% to $1.6bn, down from $1.7bn the year before. But interestingly, Netflix said it would have seen 500,000 net additions during the most recent quarter if it wasn’t for the impact of shutting down its services to Russians. The winding-down of all Russian paid memberships resulted in a loss of 700,000 subscribers. 

Yalla Group

My final pick is Yalla Group (NYSE: YALA). The stock gained after its IPO in 2020 and went from strength to strength, reaching $39 a share amid the unique market conditions. But it started falling in early 2021. Currently, the social networking and gaming provider is trading at a little over $4 a share, so there’s plenty of headroom here.

The firm posted net income of $82.6m in 2021 compared with net income of $3.2m in 2020. That’s impressive, but growth has slowed. In fact, revenue actually declined in the final quarter of 2021. For me, Yalla will need to show evidence that it can get growth back on track. But it has an ambitious plan and enough cash to push forward. Yalla’s price-to-earnings ratio is around 10, which for a tech stock, makes it look pretty cheap to me. 

The post 3 high-potential growth stocks to buy in May! appeared first on The Motley Fool UK.

The Dubai-headquartered social media firm, operates a voice-centric social networking and entertainment platform in the Middle East and North Africa. Its software provides group chatting and gaming services. 

Performance

The firm, which is valued at a little over $540m, posted net income of $82.6m in 2021 compared with net income of US$3.2m in 2020. The firm grew revenues and earnings year-on-year while producing cash flow growth and pressing forward with its expansion plans.

Data from the last reporting period demonstrates positive year-on-year growth despite the falling share price. Revenue was $273.1m in 2021, representing an increase of 102.4% from 2020. Meanwhile, net income was $82.6m and net margin was 30.2%. That compares with net income of $3.2m in 2020.

Another important metric for the company is average monthly active user (MAUs). These users increased by 71% to 28.1m in the fourth quarter of 2021 from 16.4m in Q4 2020. However, and perhaps more importantly, there was significant growth in the number of paying users, which increased from 5.2m in the fourth quarter of 2020 to 8.4m in the fourth quarter. The main growth driver was the platform’s Ludo game offering. There was a 52% increase in the number of Yalla Ludo’s paying players – from 4.0m to 6.2m over the course of the year.

However, it’s worth noting that Q4 2021 saw a fall in both revenue and income. Although the difference between Q3 and Q4 revenue was only $4m, it was certainly not a positive development.

Headwinds

A number of risks have been weighing on the company’s share price. First among them is declining revenue in the final quarter of 2021. It may be the case that the pandemic and the accompanying lockdowns contributed to its growth. But outside of the pandemic, such growth may be unsustainable as normal life returns. Another point is that higher interest rates and inflation can call a halt to growth plans as the cost of borrowing increases. Although it’s worth noting that Yalla has sufficient cash reserves for growth.

There’s also a matter of competition. Yalla has found something of a niche so far, but social media giants could well move into this space.

Should I buy?

For me, the Yalla share price has fallen far enough. And with a price-to-earnings ratio below 10, it’s starting to look rather cheap. Management also has ambitious plans for growth. The firm intends to start delivering a “more immersive” social experience area, with users seeking “metaverse”-type interactions with each other. Furthermore, Yalla is expanding into the South American market with its Parchis app.

I’m looking to add Yalla to my portfolio.

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