Recently, UK investors have been buying an under-the-radar Nasdaq-listed stock, Credo Technology (NASDAQ: CRDO). On AJ Bell, it was among the top 10 most bought shares last week.
Could there be an opportunity here? Let’s take a look.
What does Credo do?
Credo’s a US tech company focused on high-speed connectivity solutions for AI data centre infrastructure. Its solutions enable rapid communication between systems, eliminating data transfer bottlenecks.
Today, it offers a range of products designed to move data quickly including active electrical cables (AECs), which are high-speed copper cables integrated with signal-processing chips, and optical digital signal processing (DSP) chips, which are integrated into optical transceivers to support high-bandwidth optical data transfer.
Its customers include hyperscalers, AI infrastructure providers, optical module makers, and networking equipment businesses.
Incredible growth
Credo’s growth in recent years has been truly breathtaking. For the financial year ended 30 April (FY26), it generated revenue of $1.3bn – about 2,200% higher than five years earlier ($59m).
Clearly, the company has been a major beneficiary of the AI boom/data centre buildout. Looking ahead, business momentum’s expected to continue – analysts expect revenue of $2.5bn and $3.8bn this financial year and next.
Earnings crash
Now, Credo’s recent earnings – for the quarter ended 1 August – were generally very strong. For the period, revenue was up 115% year on year to $479m.
However, investors were disappointed by the company’s full-year guidance for optical products of $600m+. This led to a sharp sell-off in the stock, with the share price plummeting around 30% in just two sessions.
Buying the dip
This fall – which has taken the stock back to near $170 – has no doubt drawn in a lot of growth investors. After that drop, the stock’s now almost 50% below its recent highs.
And at current levels, the valuation looks relatively attractive. With analysts forecasting earnings per share of $6.25 this financial year (FY27) and $9.56 (FY28), we have price-to-earnings (P/E) ratios of 27 and 18.
I see an opportunity
Is the tech stock worth considering its sharp fall and reasonable valuation? I think so. To my mind, it’s priced attractively after the share price drop. At current levels, investors are getting a ton of growth for a below-average earnings multiple (using the FY28 forecast).
Note that the price-to-earnings-to-growth (PEG) ratio is only about 0.5 at present. That signals that there’s significant value on offer.
Broker price targets also suggest there’s value on offer. The average 12-month price target is $285, which is about 66% above the current share price.
Of course, the ‘not in my backyard’ pushback against data centre building is a risk with this company. This could lead to a slowdown in orders.
Taking a three-to-five year view though, I see a lot of potential. I may end up having a nibble here in the weeks ahead.
Should you invest £5,000 in Credo Technology Group right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Credo Technology Group made the list?
Edward Sheldon owns shares in Nasdaq.
This story originally appeared on Motley Fool
