Buy this punished ASX 200 tech stock when it's forced into a capital raise: expert

Certainly 2023 has brought some relief for ASX technology and growth shares, but most are still well down on what they were 15 months ago.

The S&P/ASX All Technology Index (ASX: XTX), to demonstrate, is still about one-third lower than where it was in November 2021.

That's despite climbing up 10.5% since the new year.

Shaw and Partners portfolio manager James Gerrish, in his Market Matters newsletter, set about finding a well beaten-up stock that might be worth picking up at a heavy discount right now.

"Statistically, buying market 'dogs' is NOT a winner's game, but there is occasionally a diamond to be found in the rough."

Buy this one… but at the right price

One S&P/ASX 200 Index (ASX: XJO) tech stock that's especially had a brutal time is virtual network provider Megaport Ltd (ASX: MP1).

The share price has now lost an eye-watering 74% since the November 2021 peak.

And it hasn't even participated in the recent tech rally, actually losing 8.5% year to date. 

Gerrish said its recent financial update was to blame.

"Megaport has been sold off following a disappointing result, with the main issue coming from slowing growth with the number of ports being added simply not enough to justify its $880 million market capitalisation."

Megaport shares still have a high level of interest from short sellers, meaning many professional investors are expecting further falls.

A potential shortage of working capital, according to Gerrish, is behind the pessimism.

"A large driver behind the large 9.2% short interest comes from logical concerns around cash burn and the subsequent potential need to raise equity."

However, he would pick up Megaport shares at the right price.

"We would like Megaport under $5, especially if it were after a capital raise," said Gerrish.

"Market Matters believes Megaport is an aggressive buy into weakness."

The stock closed Friday at $5.51.

He's not alone in the potential for a bargain in Megaport. According to CMC Markets, eight out of 14 analysts currently covering the stock reckon it's a strong buy.