The tech sector is booming thanks to increased investments in outsourcing tech, advanced hardware for streamlined operations, and advanced communication networking equipment. Likewise, the rising demand for faster connectivity, improved workspace standards, and digitization across sectors further enhances industry prospects.
Given this backdrop, investors could consider buying strong tech stocks Gartner, Inc. (IT), Nokia Oyj (NOK), Seiko Epson Corporation (SEKEY), AudioCodes Ltd. (AUDC), and RADCOM Ltd. (RDCM).
Ever-evolving tech trends are shaping the growth trajectory of the industry, including the trend of outsourcing tech services, which reduces IT costs, enhances scalability, and focuses on core competencies. Companies outsourcing cloud computing projects to third-party providers are driving the expected growth of the IT outsourcing market of 7.4% CAGR to $171.50 billion by 2028.
The tech sector's growth is further driven by automation, digital transformation, and the adoption of AI and VR. Businesses' increasing use of edge computing, IoT devices, and cloud services requires robust electronics and high-speed networking devices for optimal functionality. The global optical communication and networking equipment market is expected to grow at a CAGR of 15.8%, reaching $107.46 billion by 2030.
Similarly, the demand for high-quality hardware is rising due to the need for automated, interconnected, and smarter systems that meet complex processing demands and increasing workloads across industries, boosting hardware sales. The IT hardware market is expected to grow at a 7.9% CAGR, reaching $191.03 billion by 2029.
Lastly, investors' interest in tech stocks is evident from the Technology Select Sector SPDR Fund's (XLK) 36.1% returns over the past year.
Considering these conducive trends, let's analyze the fundamentals of the five tech stocks mentioned above.
Gartner, Inc. (IT)
IT operates as a research and advisory company internationally. It operates through three segments: Research, Conferences, and Consulting.
In terms of the trailing-12-month EBIT margin, IT's 18.87% is 312.6% higher than the 4.57% industry average. Its 18.03% trailing-12-month levered FCF margin is 85% higher than the 9.75% industry average. Likewise, its 133.87% trailing-12-month Return on Common Equity is considerably higher than the industry average of 3.86%.
IT's revenues for the first quarter ended March 31, 2024, increased 4.5% year-over-year to $1.47 billion. The company's adjusted net income and EPS each increased marginally from the prior-year quarter to $232 million and $2.93, respectively. Additionally, IT's adjusted EBITDA rose marginally year-over-year to $382 million.
Analysts expect IT's EPS and revenue for the quarter ending June 30, 2024, to increase 5.4% year-over-year to $3 and $1.59 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 39.1% to close the last trading session at $456.30.
IT's strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Sentiment, and Quality. Within the A-rated Outsourcing - Tech Services industry, it is ranked #2 out of 9 stocks. To see IT's Growth, Value, Momentum, and Stability ratings, click here.
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions worldwide. The company operates through four segments: Network Infrastructure, Mobile Networks, Cloud and Network Services, and Nokia Technologies.
On May 13, 2024, NOK announced that New Zealand's 2degrees has chosen NOK's 5G core software solutions, which will run on Red Hat OpenShift, to enhance data management and network reliability. This collaboration aims to modernize 2degrees' network with open cloud architectures, benefiting approximately 1.6 million subscribers.
On May 9, 2024, NOK and Alcon were selected by Sigma Lithium to deploy the first private LTE wireless campus network in the Americas for lithium mining. This network will connect over 200 workers and mine equipment, enhancing operational efficiency, productivity, and worker safety.
In terms of the trailing-12-month Return on Total Capital, NOK's 5.12% is 102.9% higher than the 2.52% industry average. Likewise, its 2.53% trailing-12-month Capex / Sales is 10.5% higher than the industry average of 2.29%. Its 10.24% trailing-12-month EBIT margin is 124% higher than the industry average of 4.57%.
During the fiscal first quarter that ended March 31, 2024, NOK's net sales amounted to €4.67 billion ($5.07 billion). Likewise, its operating profit stood at €400 million ($434.70 million). In addition, its profit for the period and EPS grew 51.6% and 50% year-over-year to €438 million ($475.99 million) and $0.08, respectively.
For the quarter ending September 30, 2024, NOK's EPS is expected to increase 69.9% year-over-year to $0.09. Its revenue for the same quarter is expected to increase 11.9% year-over-year to $5.90 billion. NOK's stock has gained 11.6% year-to-date to close the last trading session at $3.81.
It's no surprise that NOK has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value. Within the Technology - Communication/Networking industry, it is ranked #7 out of 45 stocks. Beyond what we stated above, we also have given NOK grades for Growth, Momentum, Stability, Sentiment, and Quality. Get all the NOK ratings here.
Seiko Epson Corporation (SEKEY)
Headquartered in Suwa, Japan, SEKEY and its subsidiaries develop, manufacture, sell, and provide services for products in printing solutions, visual communications, manufacturing-related, wearables, and other businesses. It operates through three segments: Printing Solutions, Visual Communications, and Manufacturing-related and Wearables.
In terms of the trailing-12-month net income margin, SEKEY's 4% is 54.4% higher than the 2.59% industry average. Similarly, its 6.84% trailing-12-month Return on Common Equity is 77.2% higher than the industry average of 3.86%. Additionally, its 0.95x trailing-12-month asset turnover ratio is 54.4% higher than the industry average of 0.62x.
For SEKEY's revenue for the fiscal year that ended on March 31, 2024, was ¥1.31 trillion ($8.42 billion), and its profit from operating activities was ¥57.53 billion ($368.88 million). The company's profit for the period attributable to owners of the parent company and EPS were ¥52.62 billion ($337.35 million) and ¥158.66, respectively.
Additionally, the company's total assets were ¥1.41 trillion ($9.06 billion) as of March 31, 2024, compared to ¥1.34 trillion ($8.60 billion) as of March 31, 2023.
Street expects SEKEY's revenue for the fiscal year ending March 31, 2025, to increase 57.6% year-over-year to $8.56 billion. The stock has gained 10.3% over the past six months to close the last trading session at $7.94.
SEKEY's positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Momentum, Stability, and Quality. It is ranked #2 out of 37 stocks in the Technology - Hardware industry. To access SEKEY's Growth, and Sentiment grades, click here.
AudioCodes Ltd. (AUDC)
Headquartered in Lod, Israel, AUDC provides advanced communications software, products, and productivity solutions for the digital workplace worldwide. The company offers solutions, products, and services for unified communications, contact centers, hosted business services, Voice.AI, and service provider businesses.
On March 25, 2024, AUDC announced a strategic partnership with Tata Tele Business Services (TTBS) to offer Smartflo UCaaS on Microsoft Teams. This will enable integrated voice calling via Microsoft Operator Connect and Direct Routing.
The collaboration enhances AUDC's presence in India's enterprise market by providing Microsoft Teams users with seamless communication solutions and advanced contact center services through the AudioCodes Live Platform.
On March 13, 2024, AUDC introduced the Voca Conversational Interaction Center (Voca CIC) as an omnichannel contact center for Microsoft Teams, now including email and webchat alongside voice. This enhancement strengthens AudioCodes Live, offering comprehensive calling and contact center capabilities for Microsoft Teams users.
AUDC's trailing-12-month gross profit margin of 65.43% is 33.2% higher than the industry average of 49.11%. Its trailing-12-month Return on Common Equity and Return on Total Assets of 5.97% and 3.29% are 54.5% and 122.3% higher than the industry averages of 3.86% and 1.48%, respectively.
AUDC's total revenues for the fiscal first quarter that ended March 31, 2024, increased 1.5% year-over-year to $60.08 million. The company's gross profit rose 5.8% from the year-ago value to $38.67 million. Furthermore, AUDC's non-GAAP net income stood at $5.22 million or $0.17 per share, up 94.7% and 112.5% over the prior-year quarter, respectively.
Analysts expect AUDC's EPS for the quarter ending June 30, 2024, to increase 19.8% year-over-year to $0.19. Its revenue for the same quarter is expected to grow marginally year-over-year to $60.56 million. It surpassed consensus revenue estimates in each of the trailing four quarters. The stock has gained 14.4% over the past year, closing the last trading session at $10.02.
AUDC's solid prospects are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. It is ranked first in the Technology – Communication/Networking industry. To see AUDC's Momentum, Stability, and Sentiment ratings, click here.
RADCOM Ltd. (RDCM)
Headquartered in Tel Aviv, Israel, RDCM provides 5G-ready cloud-native network intelligence and service assurance solutions for telecom operators or communication service providers (CSPs). Its offerings include RADCOM ACE, RADCOM Service Assurance, RADCOM Network Visibility, and RADCOM Network Insights.
On May 7, 2024, RDCM announced that RADCOM NetTalk is now available on AWS, leveraging generative AI and NLP for advanced automated assurance and real-time network insights. This enables telecom operators to manage 5G networks more efficiently and enhance customer experiences.
On May 2, 2024, RDCM announced that a U.S. telecom operator extended its contract to use RADCOM ACE Service Assurance, now running on AWS as a SaaS. This will enhance automation and flexibility, providing real-time network insights to ensure superior customer experiences.
In terms of the trailing-12-month net income margin, RDCM's 7.18% is 176.8% higher than the 2.59% industry average. Its 73.60% trailing-12-month gross profit margin is 49.9% higher than the 49.11% industry average. Likewise, its 3.44% trailing-12-month Return on Total Assets is 133.1% higher than the industry average of 1.48%.
In the fiscal first quarter ended March 31, 2024, RDCM's revenue increased 17.5% year-over-year to $14.12 million. The company's non-GAAP gross profit increased 19.9% year-over-year to $10.51 million. Additionally, its non-GAAP net income and net income per share came in at $2.85 million and $0.18, up 55.8% and 50% year-over-year, respectively.
Street expects RDCM's revenue for the quarter ending June 30, 2024, to increase 14.1% year-over-year to $14.11 million. Its EPS for the same quarter is expected to grow 60% year-over-year to $0.08. It surpassed the revenue estimates in each of the four trailing quarters. Over the past six months, the stock has gained 19.6% to close the last trading session at $9.40.
RDCM's POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #4 out of 79 stocks in the Technology – Services industry. It has an A grade for Sentiment and a B for Growth, Stability, and Quality. Click here to see RDCM's Value, and Momentum ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
IT shares were trading at $448.12 per share on Tuesday afternoon, down $8.18 (-1.79%). Year-to-date, IT has declined -0.66%, versus a 12.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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