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Are these tech stars in the buy zone?

The tech sector has come under significant selling pressure over the last six weeks. During this time the S&P/ASX 200 Info Tech has lost 9% of its value.

Three tech shares that have been hit hard over the period are listed below. Are they in the buy zone?

Afterpay Touch Group Ltd (ASX: APT)

As well as being caught up in the tech selloff, investors have been selling Afterpay Touch’s shares due to the Senate inquiry into areas of the financial services industry that were missed by the Royal Commission. There are concerns that regulators could force changes that impact the Afterpay Touch business model. While this is certainly possible, I’m not convinced that anything too disruptive will come out of the inquiry. Which could arguably make the selloff a buying opportunity for investors, especially given its positive start in the U.S. market. However, it is worth remembering that negative investor sentiment could drag its share price lower.

Altium Limited (ASX: ALU)

The tech selloff means that this printed circuit board design software company’s shares have given back almost all the gains they made during earnings season. Although this still means that Altium’s shares are trading at a meaningful premium to the market average at 45x estimated forward earnings, I think it is worth considering Altium if you’re prepared to make a buy and hold investment. Given the size of its market opportunity and its leading position in that market, I believe Altium is well positioned to grow earnings at a solid rate over the next decade.

Appen Ltd (ASX: APX)

Although the Appen share price rose strongly last week after it upgraded its full year earnings guidance, I still think it is the best value share in the WAAAX group. The company expects its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the 12 months ending December 31 to be in the range of $62 million to $65 million. This will be a 120% to 131% increase on FY 2017’s result. A note out of Citi reveals that it expects further strong growth in FY 2019. Based on its forecast Appen’s shares are priced at a reasonable 27x FY 2019 earnings.

Finally, if you like exciting tech shares such as Altium, Appen, and Afterpay Touch then I think you'll love these up and coming tech stars.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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