A lot of retail or 'mum and dad' type investors love the tech sector because of the ballistic share price growth some companies in it offer.
However, not all tech businesses are equal and some of the fast rising ones will turn out to be flashes in the pan that investors got sucked into overpaying for on the back hype or the fear of missing out (FOMO).
In Australia for example some tech businesses like Pro Medicus Limited (ASX: PME) may be overvalued, while others like iSignthis Ltd (ASX: ISX) may be worth nowhere near their current valuations.
The really strong tech businesses will have super strong balance sheets, market leading products, big sales (>$100pa already), scalability, and large global addressable markets.
I already own 5 of the 7 businesses below, but would almost give my right arm to own more shares in them given most of my holdings are barely into five figures, while two of them in The Trade Desk and Shopify I don't own at all.
Moreover, these stocks have all tumbled in valuation over the past month on profit taking and changing sentiment.
As such the beaten-down prices may represent a good entry point for long-term investors. Let's take a brief look at them.
The Trade Desk (TTD) is commonly described by bulls as the 'next Google" thanks to the strong network effects provided by the tech supporting its online advertising marketplace. It's already profitable, growing like nuts, has no debt and around US$231 million cash on hand.
Shopify (SHOP) is probably the most successful of the newer cloud-based software-as-a-service (SaaS) businesses. It lets SMEs sell goods or services online via its 'check out' style internet platform. On an adjusted basis it's profitable, growing strongly and has around US$2 billion cash on hand. It also offers superb leverage to the growth of e-commerce.
Twilio Inc (TWLO) expects to be profitable over calendar 2019 and is probably the fastest-growing business on this list as its software helps enterprise clients communicate with consumers via text message, mobile phone calls, or its own CRM platform.
Okta Inc (OKTA) provides a cloud-based SaaS online login platform that allows users to login to different platforms via a single login to the Okta platform. It's wining large enterprise subscribers (i.e. >$100k pa subs) at a strong rate to suggest it's a leader in a fast growing cyber-security market. Recently it had around US$557 million cash on hand.
MongoDB (MDB) is a non-SQL database business that is growing fast thanks to how it lets enterprise users sort and shift data more effectively than traditional SQL providers like Oracle.
Alteryx (AYX) is also a cloud-based data analytics platform provider that's core market is the US. However, it's also pushed heavily into Australia and reportedly has snared blue-chip clients like Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS). It's profitable on an adjusted basis and appears to have a moat while growing very strongly.
Foolish takeaway
I'm not kidding when I say the share prices of these companies have been hammered over the last month, which means now might be a good time to grab a slice of the action.
Of course they're still on high valuations using traditional metrics which means there's a lot downside risk if the anticipated growth does not materialise. However, given their qualities and balance sheets I'd happily buy shares in all six today.
