A famous Warren Buffett saying goes "The stock market is a device for transferring money from the impatient to the patient".
But it's fair to say 2022 has tested the nerves of investors in technology stocks.
The S&P/ASX All Technology Index (ASX: XTX) has now lost almost 35% over the past 12 months, and there is not much relief in sight with the Reserve Bank continuing to increase interest rates.
"With the benefit of hindsight, high-growth tech businesses proved to be the proverbial canary in the coalmine," said Forager Funds portfolio manager Alex Shevelev and senior analyst Gaston Amoros.
"The canary went very quiet during most of 2021 and then suffered a catastrophic heart attack in 2022."
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Rock-bottom share prices don't match the fundamentals
If you're willing to be patient, though, there are some bargains to be snapped up right now.
"For some of these companies… the low share prices belie the trajectory of the fundamentals."
Shevelev and Amoros took PDF and e-signature tools provider Nitro Software Ltd (ASX: NTO) as a prime example.
"After raising capital at $3.43 a share in late 2021 to fund a European acquisition, [it] saw its share price trade down to almost $1 and has now received a takeover offer from private equity funds at $1.58 a share," they said.
"The company was quick in rejecting the offer as opportunistic and significantly undervaluing the business. We tend to agree with them."
Many tech companies have reined in their spending
The Forager team noted that the new environment of higher interest rates and scrutiny on growth shares has led to many tech companies to change their ways.
"Software vendors, in particular, keep growing fast and are now displaying a newfound zeal in cost cutting that has pulled cash flow forecasts forward," they said.
"It is not a coincidence that we are getting opportunistic take-private bids in this space."
Nitro's shares are up almost 50% since the rejected takeover offer, although they are still about a third down since the start of this year.
According to Shevelev and Amoros, Nitro is not the only one tightening its belt and looking ripe for investors willing to ride for the long term.
"There are other good software businesses out there that offer a similar risk-reward profile to the patient investor," they said.
"In our portfolio, we are very happy with our holdings in software vendors Whispir Ltd (ASX: WSP), Bigtincan Holdings Ltd (ASX: BTH), and RPMGlobal Holdings Ltd (ASX: RUL)."
The Whispir share price is down 60.5% for the year so far, while Bigtincan is 42.4% lower and RPM Global has lost 29.1%.
