The internet sector has significantly been fueled by the growing consumer base of eHealth platforms and digitization across almost all sectors. Given the favorable industry trends, undervalued internet stocks trivago N.V. (TRVG), CarGurus, Inc. (CARG), and Data Storage Corporation (DTST) could be wise picks.
The digital revolution of enterprises across almost all industries is driving huge growth in the internet services market. The e-commerce sector's explosive growth, the healthcare sector's digitization, rising online entertainment consumption, and governmental e-governance activities are a few of the key drivers of the worldwide broadband services market.
The global internet services market is expected to grow at a CAGR of 4.4% until 2031.
Moreover, the increased usage of satellite services by enforcement, firefighters, and other law and government agencies, as well as improvements in international wireless communication, are the principal elements that affect the worldwide satellite internet market growth. Furthermore, the increase in government attempts to integrate satellite broadband telecommunication services benefits the satellite internet market value.
Therefore, the global satellite internet market is estimated to grow at a CAGR of 18.2% until 2030.
Furthermore, the increasing demand for affordable smart wireless devices is likely to drive the growth of the wireless internet industry. According to a report by ReportLinker, the global wireless internet services market is estimated to reach $921.97 billion by 2027, growing at a 7% CAGR.
With these favorable trends in mind, let’s take a look at the fundamentals of the three Internet stock picks, starting with number 3.
Stock #3: trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG operates a hotel and accommodation search platform in the United States, Germany, the United Kingdom, and internationally. It offers an online meta-search for hotels and accommodation through online travel agencies, hotel chains, and independent hotels.
TRVG’s forward EV/Sales of 0.15x is 91.9% lower than the industry average of 1.91x. Its forward EV/EBIT multiple of 1.88 is 87.9% lower than the industry average of 15.60.
For the fourth quarter that ended December 31, 2023, TRVG’s revenue came in at €91.70 million ($98.26 million). Its operating income came in at €4.41 million ($4.73 million) and net income came in at €2.50 million ($2.68 million). Also, its adjusted EBITDA came in at €7.30 million ($7.82 million).
Analysts expect TRVG’s revenue to be $113.63 million for the year ended March 2024.
The stock has gained 6.7% over the past month to close the last trading session at $2.55.
TRVG’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade in Quality and a B in Quality. It is ranked #14 out of 52 stocks in the Internet industry.
Click here to see the other ratings of TRVG (Growth, Momentum, Stability, and Sentiment).
Stock #2: CarGurus, Inc. (CARG)
CAGR operates an online automotive marketplace connecting buyers and sellers of new and used cars in the United States and internationally. It operates through two segments, U.S. Marketplace and Digital Wholesale. The company provides consumers an online automotive marketplace where they can search for new and used car listings from its dealers, as well as sell their car to dealers and other consumers.
On January 29, 2024, CARG announced the addition of Chase to its multi-lender financing platform, expanding options for consumers looking to pre-qualify for auto financing from the comfort of home.
CARG’s forward non-GAAP PEG of 1.09x is 31.6% lower than the industry average of 1.59x. Its forward EV/EBIT multiple of 14.20 is 9.9% lower than the industry average of 15.76.
CARG’s total revenue for the fiscal third quarter that ended September 30, 2023, came in at $219.42 million. Its non-GAAP net income attributable to common stockholders increased 40.3% year-over-year to $38.32 million and non-GAAP net income per share increased 47.8% year-over-year to $0.34.
The consensus revenue estimate of 238.43 million for the fiscal current quarter ending March 2024 represents a 2.8% increase year-over-year. Its EPS is expected to grow 19.9% year-over-year to $0.31 for the same quarter. Also, the company topped the consensus EPS and revenue estimates in each of the four trailing quarters, which is impressive.
The stock has gained 28.3% over the past six months to close the last trading session at $23.20.
CARG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B in Value. Within the same industry, it is ranked #13 stocks.
Beyond what is stated above, we’ve also rated CARG for Momentum, Growth, Sentiment, and Stability. Get all CARG ratings here.
Stock #1: Data Storage Corporation (DTST)
DTST provides multi-cloud information technology solutions primarily in the United States. The company offers data protection and disaster recovery solutions; high availability, data vaulting, retention, Infrastructure as a Service, standby server, support and maintenance, and internet solutions. It also provides cybersecurity solutions and voice and data solutions such as VoIP and data services.
On January 24, 2024, announced that it had secured a six-figure contract with a multinational telecommunications company to replace and maintain its old tape library with new advanced backup technology.
DTST’s sales for the fiscal third quarter ended September 30, 2023, increased 35.5% year-over-year to $5.99 million. Its income from operations came in at $14.14 thousand, compared to a loss from operations of $223.22 thousand in the prior year quarter. Its net income attributable to DTST stood at $179.01 thousand, compared to a net loss attributable to DTST of $245.62 thousand in the previous year’s quarter. Its EPS came in at $0.02, compared to a loss per share of $0.04 in the prior year quarter.
Over the past nine months, the stock has surged 99% to close the last trading session at $3.80.
It’s no surprise that DTST has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Sentiment and Growth. Within the same industry, it is ranked #12.
In addition to the POWR Ratings stated above, one can access DTST's ratings for Momentum, Value, Quality, and Stability here.
What To Do Next?
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TRVG shares were trading at $2.49 per share on Thursday afternoon, down $0.06 (-2.35%). Year-to-date, TRVG has gained 2.05%, versus a 5.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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