Thoughtworks Holding Inc Riding Digital Technology Wave

Technology stocks mounted a significant rally in the first six weeks of the second half of this year. The Nasdaq rallied by 18% during that period, and it has been trending higher. In June, a staggering 83% of Nasdaq stocks were trading below their 50-day moving averages, compared to only 20% as of August 11.

While there’s no guarantee that the upward trend is sustainable, I see opportunities for aggressive contrarian investors.

In particular, I’m bullish on the digital transformation space. MarketsandMarkets estimates that the digital transformation market was $521.5 billion in 2021 and that it could grow to $1.3 trillion by 2026. (Source: “Digital Transformation Market,” MarketsandMarkets, last accessed August 11, 2022.)

This translates into major opportunities. To play this, investors might want to consider Thoughtworks Holding Inc (NASDAQ:TWKS), a rapidly growing player in the digital transformation market. The company’s solutions help clients with their digital transformation.

The company recently broke above $1.0 billion in revenues, but shares of Thoughtworks Holding Inc are down by 38% over the last year and are trading below their initial public offering (IPO) price of $20.00. TWKS stock traded as high as $34.43 in September before it retrenched by 50%.

At its current price, Thoughtworks stock looks attractive for contrarian investors.

Thoughtworks Holding Inc has a history of sound business execution and financial growth. Its revenues grew from $772.2 million in 2019 to 803.4 million in 2020 to $1.1 billion in 2021.

And there’s more to come. Analysts expect the company's revenues to increase by 27.5% to $1.4 billion this year, followed by 20.7% to $1.7 billion in 2023. (Source: “Thoughtworks Holding, Inc. (TWKS),” Yahoo! Finance, last accessed August 11, 2022.)

Those estimates imply that Thoughtworks Holding Inc is trading at a reasonable 2.9 times its consensus 2023 revenue estimate.

Technical Charts Show a Possible Double for TWKS Stock

Given Thoughtworks stock's price deterioration, the risk/reward trade-off is compelling for patient traders who are willing to ride out volatility.

Shares of Thoughtworks Holding Inc have been caught in a downward trading channel since their IPO high. But TWKS stock recently broke out at trendline resistance supported by rising relative strength and an uptrending moving average convergence/divergence (MACD).

Thoughtworks stock has recovered its 50-day moving average at $15.37 after breaking its channel resistance.

Chart courtesy of StockCharts.com

Next up could be TWKS stock mounting an attack toward its 200-day moving average of $21.19, followed by congestion at $22.00–$24.00 and $26.00–$30.00, representing a near doubling in price.

On the downside, I view Thoughtworks stock's June 14 low of $12.99 as a potential bottom.

Analyst Take

Thoughtworks Holding Inc has significant insider ownership of about 72.5% of its outstanding shares. (Source: Yahoo! Finance, op. cit.)

This suggests that insiders will be motivated to see TWKS stock's price rise. I don’t expect any major insider selling of shares at their current price.

The company's valuation is attractive, and tailwinds in the digital transformation market support a bull story for TWKS stock.