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

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.

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.

The post Buy this punished ASX 200 tech stock when it’s forced into a capital raise: expert appeared first on The Motley Fool Australia.

Should you invest $1,000 in Megaport Limited right now?

Before you consider Megaport Limited, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Megaport Limited wasn’t one of them.

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See The 5 Stocks
*Returns as of March 1 2023

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More reading

Motley Fool contributor Tony Yoo has positions in Megaport. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport. The Motley Fool Australia has recommended Megaport. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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