Internal corrections can be harsh, but they remove a layer of froth, improving the health of the overall market. The Nasdaq Composite index since the start of March has traded in a broad sideways range, but many individual tech stocks (especially smaller-caps) during this time have experienced sharp pullbacks. Even companies that delivered strong second quarter results and raised guidance for the third quarter (and year) have seen their shares sold off.

The latest quarterly results from the tech sector actually have been quite respectable. So far, more than 80% of the tech companies in the S&P 500 have reported second quarter results, with 58% delivering revenue above the consensus estimate, vs. 49% for all of the stocks in the index, according to Trinity Asset Management. Among the various industries in the S&P 500, only healthcare (67% above consensus) and financials (61% above consensus) have turned in better performances.

Given the recent valuation compression in tech despite continued solid fundamentals, a greater number of individual names are now trading at more attractive risk/reward balances. If the overall market during the coming months is able to hold up in the face of potentially rising interest rates, we should see a better environment for the tech sector into the end of the year.

Security solutions vendor Palo Alto Networks (PANW) is a good example of a stock going through an internal correction. From the peak in July at $200.55, the shares retreated as much as 18.9%, hitting a low of $162.64 earlier this month. A recent bounce has taken the stock back to around $173.50.

The shares corrected even though Palo Alto’s fundamentals continue to shine, with the company emerging as one of the leaders in next-generation cybersecurity. Palo Alto’s platform approach has been a major selling point for larger enterprise customers looking to consolidate more of their security spending with a few key vendors.rob

Thanks to ambitious R&D and acquisition efforts, the company boasts excellent security technology. Plus, all of its solutions work well together, giving customers a single view into the security of their networks and endpoints. The result is Palo Alto is increasingly scoring major wins again larger legacy competitors, including Cisco Systems (CSCO) and Check Point Software (CHKP).

In late May, Palo Alto reported fiscal third quarter (ended April) revenue advanced an impressive 55% year over year to $234.2 million, easily topping the consensus estimate of $223.2 million. Billings jumped 56% and deferred revenue rose 64%. The company’s fiscal fourth quarter guidance calling for revenue of $252 million to $256 million (growth of 41% to 44%) came in well above the consensus of $247.6 million. For fiscal 2015 (ended July), the consensus revenue estimate of $900.2 million represents growth of 50.5%.

Shares of Next Wave Portfolio holding Qualys (QLYS), another security solutions provider, have fallen 12% since the company in early August reported second quarter results above the consensus on both the top and bottom lines. The stock has dropped 42.5% from the May high of $55.47. The company’s market cap is down to $1.09 billion, 6.6 times the  2015 consensus revenue estimate of $165.4 million and 5.3 times the 2016 consensus of $204.9 million. Revenue growth this year and next is expected to average around 24%.

Qualys is a specialist in vulnerability management (accounting for 79% of second quarter revenue), a market growing about 19% annually. But it continues to see 50%+ growth from its emerging business segments—covering policy compliance, continuous monitoring and Web security. The company remains in expansion mode on the sales side, as it just hired a new VP/general manager for the European region and is actively looking for a leader to build out its federal operations.

In early August, Varonis Systems (VRNS), a provider of solutions to manage and secure unstructured data, reported second quarter revenue grew 18% to $29.2 million, above the consensus estimate of $28.8 million. Revenue in the U.S. region (representing 62% of total revenue) advanced 22% even against a tough comp from last year, while revenue growth in the EMEA region (32% of revenue) accelerated to 21% from 15% in the first quarter. In the latest quarter, Varonis added 258 customers, a 25% increase over the number of adds in the year-ago period.

While Varonis stock, a holding in the Next Wave Portfolio, has rebounded nearly 14% since the second quarter report, it’s still down 39% from the February high of $38.48. At a recent market cap of $585 million, the shares trade at 4.7 times the 2015 consensus revenue estimate of $124.4 million and just 3.8 times the 2016 consensus of $152.6 million. For this year and 2016, revenue growth is expected to average nearly 23%. On the balance sheet, Varonis has $104.9 million in cash & investments, with no debt.

Also in the Next Wave Portfolio, Zendesk (ZEN), provider of a cloud-based customer service platform, reported second quarter revenue jumped 63% to $48.2 million, ahead of the consensus of $46.3 million. The company in the June quarter added more than 3,000 customers and now has 60,000+ accounts. Zendesk is attracting more larger customers, which is driving up annual contract values. For the third quarter, Zendesk’s revenue guidance range came in above the consensus. The revised 2015 guidance range of $198 million to $201 million represents 57% growth at the midpoint.

Despite all of those positive metrics, Zendesk shares, recently trading around $20.70, are basically flat since the second quarter report came out earlier this month. The stock is off 21.5% from its February high of $26.37.

Even some of the larger tech companies have seen their shares take a hit despite improved fundamentals. Chipmaker Avago Technologies (AVGO), sporting a market cap of $33 billion, this year has consistently raised earnings guidance, yet its stock, recently trading around $122, is down 19% from the June 1 high of $150.50. Since the middle of May, the fiscal 2015 (ending October) consensus EPS estimate has added 25 cents to $8.68, while the forward P/E has contracted to 14 from 15.4. On the fiscal 2016 consensus of $9.31 (up from $9.10 in the middle of May), the P/E has contracted to 13.1 from 14.3.
During the past three months, the fiscal 2016 (ending September) consensus EPS estimate for mobile chipmaker Skyworks Solutions (SWKS) has risen 27 cents to $6.19. But with the stock recently trading around $89.10, down 21% from the June high of $112.88, the forward P/E has been compressed to 14.4 from 17.4.