Oversold Tech Stocks Poised for a Turnaround

By Markets Fool.com

Tech stocksaren'tfor everyone.

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As sectors go, it may be the most volatile -- prone to wild swings and full of valuations built on sky-high growth projections. Established companies with solid business models are often cash-generating machines, but some of the more interesting tech stocks are often profitless companies pursuing rapid growth with disruptive business models.

But when the growth doesn't come (or doesn't come quickly enough), the consequences can be quite severe.

Below are three tech stocks that have fallen prey to aggressive valuations and lofty expectations. All three have disappointed analysts in recent months and suffered significant sell-offs. Yet, as their core business models appear to be intact, their stocks could be due for a resurgence.

SanDisk's disappointing guidance has sparked a significant sell-off
Shares of flash memory maker SanDisk have lost more than 28% of their value since the beginning of 2015. In January, SanDisk reported a drop in profit for its fourth-quarter earnings, and in March, it warned that sales for the first quarter would come in below expectations.

SNDK Chart

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SNDK data by YCharts.

But SanDisk remains an intriguing player in a growing market. If it can correct the execution issues that have seemingly plagued its business in recent quarters, it could be due for a resurgence.

SanDisk's recent guidance paints a disappointing picture, but its business has been growing: Revenue rose 7% on an annual basis last year. Solid-state drives, the next-generation hard-drive technology that offers significantly faster speeds and more reliable storage, make up almost one-third of SandDisk's revenue, and the company is one of the largest players in the space.

NAND flash memory -- the technology that underpins SanDisk's solid-state drives and its other products -- is in demand. Research company TrendForce expects demand to rise 12% annually in 2015.

SanDisk's recent guidance cut sparked a string of analyst downgrades, leading to dramatically lower expectations. SanDisk now trades with a relatively modest, below-market multiple, and it may not take much in the way of good news to get the stock moving in a positive direction.

Yelp's growth has been slowing
Since last September, Yelp shares have lost more than 40% of their value. The local reviews website has been plagued by a string of disappointing earnings reports, bad publicity, and slowing growth.

YELP Chart

YELP data by YCharts.

But Yelp remains an excellent companyexperiencingrapid growth. For 2014, its fourth-quarter revenue was up a staggering 56% on an annual basis, while adjusted EBITDA rose 150%. Reviews -- arguably the life-blood of Yelp's business -- continue to surge; the cumulative figure rose 35% last year to 71 million.

In its relatively brief history as a publicly traded company, Yelp has never been a value stock, but its sky-high valuation has become a bit less extreme as its stock price has fallen and it'sachievedprofitability. Until it becomes consistently profitable, Yelp is likely to continue to suffer from immensevolatility, but for investors with a longer-term perspective, Yelp could be one company that eventually swings back.

Stratasys was burned by bad guidance
Shares of 3D printing giant Stratasys have lost almost half their value over the last six months. In February, management cut its annual guidance and warned that its acquisition of MakerBot was looking less promising.

SSYS Chart

SSYS data by YCharts.

Stratasys is another company experiencing rapid growth. Last quarter, revenue rose 35% on an annual basis excluding acquisitions (62% when its acquisitions were included). Non-GAAP net income jumped 50%. As an industry, 3D printing is expected to grow 31% annually until 2020, and Stratasys remains a leader in the space.

Stratasys' valuation has been stretched as its stock has soared, but the recent sell-off has given it a more attractive valuation. At its peak, roughly 12 months ago, Stratasys was trading with a forward price-to-earnings ratio of around 100. Today, it's less than 40. It's certainly not a cheap stock, but for a company in a market with such attractive prospects, it could be due for a resurgence.

The article Oversold Tech Stocks Poised for a Turnaround originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Stratasys and Yelp. The Motley Fool owns shares of Stratasys. Try any of our Foolish newsletter services free for 30 days. 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.