Tuya TUYA, a leading global provider of IoT development platforms, has seen its stock decline 32% year to date (YTD), significantly underperforming the Zacks Internet - Software industry’s return of 28.8%. The stock has also underperformed the Technology Select Sector SPDR Fund XLK ETF’s YTD return of 20.1%.

While the plunge raises concerns about Tuya’s near-term challenges, the long-term investment case appears compelling. Tuya’s strong fundamentals, growing market presence and strategic initiatives position it as a potential recovery play in the Internet of things (IoT) sector. Here’s why investors should consider buying the dip.

Tuya Inc. Sponsored ADR Price and Consensus

Tuya’s Resilient Revenue Growth Amid Market Challenges

Tuya has demonstrated impressive resilience in maintaining revenue growth despite a challenging macroeconomic environment. In the third quarter of 2024, TUYA reported a 33.6% year-over-year increase in total revenues, reaching $81.6 million. While quarter-over-quarter growth decelerated, the year-over-year improvement highlights the company’s ability to adapt and scale amid economic headwinds. Tuya’s diversified revenue streams across IoT PaaS, SaaS, and smart device distribution provide a strong foundation for sustained growth.

Moreover, the company’s IoT PaaS segment, which constitutes its largest revenue driver, grew significantly, fueled by robust demand in North America and Europe. Tuya’s efforts to expand its geographic footprint have begun yielding results, mitigating some risks associated with its reliance on the Chinese market.

Tuya’s Strategic Contracts Bolster Long-Term Growth

In the third quarter, TUYA entered into definitive agreements globally, particularly in Europe and emerging markets, and expanded its developer community to 1.26 million registered developers.

A continuous flow of contracts is driving Tuya’s growth. The company concluded two fresh contracts in the third quarter with leading telecom operators in Thailand and Vietnam and is consistently receiving repeat orders from smart devices from existing customers who have already deployed its solutions. During the third quarter, it also grabbed a $1.3 million contract from Singapore’s Housing & Development Board, which underscores its growing presence in large-scale enterprise projects.

These contracts not only strengthen Tuya’s credibility but also open doors for further expansion into the burgeoning IoT market. Such contracts demonstrate TUYA’s ability to secure high-value deals and tap into rising digital transformation initiatives globally.

The Zacks Consensus Estimate for 2024 and 2025 indicates a strong double-digit revenue growth. The company’s earnings are also expected to increase year over year in both years.

Strategic Collaboration to Aid TUYA’s Prospects

TUYA is expected to benefit from its meaningful partnership agreements. The partnership with V2 Indonesia, the top solution provider in Indonesia, in June 2024 to jointly promote the deep integration of cutting-edge technologies is a notable development.

In July 2024, TUYA’s partnership with AiTAN, Thailand's premier smart solution provider, was a significant move. The collaboration was a remarkable step in their joint pursuit of creating cutting-edge smart solutions to elevate the smart living experience for commercial developers and household users across Thailand and broader Southeast Asia.

The latest partnership with Cerence to offer multi-lingual text-to-speech for its cloud developer platform, which is specifically tailored for two-wheel vehicles like motorcycles, e-bikes and more, was a positive move.

Tuya’s Competitive Edge in the IoT Ecosystem

Tuya stands out against rivals like Microsoft’s MSFT Azure IoT and Amazon’s AMZN AWS IoT Core by leveraging its scalable and AI-driven IoT development platform tailored for a broad spectrum of businesses. While competitors cater primarily to large enterprises, Tuya democratizes IoT adoption with cost-effective solutions accessible to small and medium-sized businesses, a massive untapped market.

Unlike Azure IoT and AWS IoT Core, Tuya offers an integrated ecosystem spanning IoT PaaS, SaaS and smart device distribution, enabling end-to-end device connectivity and streamlined deployment. Its modular approach allows businesses to customize their IoT infrastructure without technical expertise.

Tuya’s Industry SaaS solutions also differentiate it by addressing niche verticals like hospitality, energy management and security. This targeted strategy helps Tuya penetrate markets underserved by its larger rivals.

Conclusion: Buy TUYA Stock for Now

Despite its 32% YTD plunge, Tuya’s robust revenue growth, expanding SaaS ecosystem and strong financial position make it a compelling investment. The company’s strategic focus on geographic diversification, enterprise partnerships and technological innovation enhances its growth outlook.

From a valuation standpoint, TUYA currently trades at a price-to-sales multiple of 2.30X, which is well below the industry average of 2.94X. This discount provides an entry point for value-seeking investors who believe in the long-term potential of the cloud platform services.

TUYA currently carries a Zacks Rank #2 (Buy), implying that investors should accumulate the stock now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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