Bargain basement? 2 ASX tech shares slumping to 52-week lows today

Are these tech shares bargain buys after slumping to 52-week lows?

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The tech sector has come under pressure again on Friday. In late trade, the S&P ASX All Technology index is down a disappointing 3%, stretching its year to date decline to almost 25%.

Investors have been selling tech shares again today after a particularly strong inflation reading in the United States sparked fears of even quicker than expected rate hikes.

Rising rates are bad news for tech shares as they lead to higher discount rates (in valuation models) and lower the present value of future cash flow.

As covered here recently, tech shares that are not yet profitable have been hit the hardest and seen their shares de-rate materially.

Goldman Sachs notes: "Technology companies with low/no profitability have been hardest hit by rising rates, falling -40% on average since the Nov-21 vs -24% for profitable tech and -14% for US tech. […] with the median company de-rating -25% and NEA, NXL, NTO de-rating >50%."

While this is disappointing, it could have created a buying opportunity for investors. For example, the two ASX tech shares listed below have just hit 52-week lows or worse but could end up being bargain buys if analysts are on the money.

Here's what you need to know:

ELMO Software Ltd (ASX: ELO)

The ELMO share price has continued its slide and hit a four-year low of $3.34 on Friday. This means the HR technology company's shares have lost approximately 27% of their value in 2022.

According to a recent note out of Morgan Stanley, its analysts have an overweight rating and $7.80 price target on the company's shares. This implies potential upside of ~130%.

Nitro Software Ltd (ASX: NTO)

The Nitro share price has been under pressure again on Friday and dropped to a 52-week low of $1.16. This latest decline means the document productivity software company's shares are now down by over 50% since the start of the year.

Goldman Sachs sees this as a buying opportunity. Last week its analysts reiterated their buying rating and $2.60 price target on Nitro's shares. This suggests over 100% upside over the next 12 months for investors.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Elmo Software. The Motley Fool Australia owns and has recommended Elmo Software. The Motley Fool Australia has recommended Nitro Software Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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