The telecom industry has been leveraging the strong consumer demand amid the hybrid lifestyle to fuel its growth despite the macroeconomic headwinds. With the increasing uptake of next-generation technologies and constant innovation, investors could consider watching quality telecom stocks IDT Corporation (IDT) and Ooma, Inc. (OOMA) this year.
From the days of fixed landlines to the introduction of smartphones, the telecommunications industry has been known to reinvent itself. The industry has been thriving amid solid demand as companies ramp up their offerings to provide high-speed network connectivity with continued digital transformation and hybrid lifestyles.
Additionally, blockchain technology in telecom offers greater security by encrypting data on networks in a safer and more verifiable manner. As a result, it is predicted to assist various telecom firms in improving network security and lowering operational expenses. According to Fact.MR, the global blockchain in the telecom market is set to garner $80 billion by 2033, booming at 74.8% CAGR through the forecast period.
Furthermore, thanks to the acceleration of IoT and the 5G network and rapid technological advancement, the telecom market should experience sustained growth. According to the Business Research Company, the global telecom market grew from $2.87 trillion in 2022 to $3.04 trillion in 2023. Further, the market is expected to grow to $3.82 trillion in 2027 at a CAGR of 5.8%.
Given the industry’s solid growth prospects, we think fundamentally sound telecom stocks IDT and OOMA could be solid additions to your watchlist this year.
IDT Corporation (IDT)
IDT is a global provider of fintech, unified cloud communications, and traditional communications services. The company enables businesses to transact and communicate with their customers with enhanced intelligence and insight. It operates through three segments: Fintech; net2phone; and Traditional Communications.
On February 23, IDT launched its cloud-based prepaid-as-a-service platform, Zendit, which offers innovative prepaid solutions to meet the needs of businesses and organizations of all sizes while ensuring uptime and availability.
As the rapid adoption of digital prepaid services is fueling extraordinary growth in the global prepayments space, Emilio del Rio, President of IDT Digital Payments, said, “Zendit enables companies to participate in this high-growth opportunity by efficiently integrating cross-border prepaid offerings into their apps and websites in a matter of minutes.”
IDT’s income from operations increased 46.9% year-over-year to $20.23 million in the fiscal 2023 first quarter that ended October 31, 2022. During the same period, the company’s net income and non-GAAP EPS came in at $12.56 million and $0.43 compared to a net loss and non-GAAP loss per share of $2.25 million and $0.08, respectively, in the previous-year quarter.
Also, its adjusted EBITDA amounted to $24.30 million, up 32.1% year-over-year.
IDT’s trailing 12-month ROCE of 23.99% is 542.8% higher than the industry average of 3.73%. The company’s trailing 12-month ROTC of 22.51% is 445.2% higher than the industry average of 4.13%, while its trailing 12-month ROTA of 8.26% compares to the industry average of 1.77%.
In terms of trailing 12-month EV/Sales, IDT is trading at 0.53x, 743% lower than the industry average of 2.06x. Likewise, its trailing 12-month EV/EBIT multiple of 10.20 is 35% lower than the industry average of 15.67.
The stock has gained 22.2% over the past six months and 12.9% year-to-date to close the last trading session at $31.81.
IDT’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IDT also has an A grade for Growth and a B for Value and Stability. It is ranked #3 of 20 stocks in the Telecom - Domestic industry. Click here to see the additional ratings of IDT (Momentum, Sentiment, and Quality).
Ooma, Inc. (OOMA)
OOMA provides communications services and related technologies to businesses and residential customers in the United States and Canada. Its products include Ooma Business, Ooma Office, Ooma Enterprise, and Ooma AirDial.
On November 29, 2022, the company announced that T-Mobile for Business had started offering Ooma AirDial, a solution for POTS replacement, as part of its Internet of Things portfolio. This reflects the growing demand for OOMA's services and vast market reach.
Also, in September, OOMA acquired Junction Networks Inc., a cloud-based phone and unified communications services provider. The acquisition is expected to increase the company’s profitability and cash flows.
In terms of forward EV/Sales, OOMA is trading at 1.47x, 23.6% lower than the industry average of 1.93x.
OOMA’s total revenue increased 15.3% year-over-year to $56.78 million for the third quarter that ended October 31, 2022. Its gross profit grew 18.8% from the year-ago value to $35.92 million, while its non-GAAP operating income rose 7.8% year-over-year to $3.51 million.
The company’s non-GAAP net income and non-GAAP net income per share increased 4.7% and 7.7% year-over-year to $3.46 million and $0.14, respectively. In addition, its adjusted EBITDA came in at $4.50 million, up 11.7% from the previous year’s quarter.
Analysts expect OOMA’s revenue to increase 11.7% year-over-year to $56.40 million in the fourth quarter (ended January 31, 2023). Its EPS is estimated to grow 10.3% year-over-year to $0.14 in the to-be-reported quarter. Moreover, it surpassed EPS estimates in each of the trailing four quarters, which is promising.
OOMA’s trailing-12-month gross profit margin of 63.05% is 27.8% higher than the 49.34% industry average. Likewise, its trailing-12-month asset turnover ratio of 1.81x is 271.9% higher than the industry average of 0.49x.
Over the past six months, the stock has lost marginally to close the last trading session at $13.13.
It is no surprise that OOMA has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has an A grade for Growth and a B for Value, Stability, and Sentiment. Within the same industry, it is ranked first.
In addition to the POWR Ratings stated above, we have also given OOMA grades for Momentum and Quality. Get all OOMA ratings here.
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IDT shares were trading at $30.93 per share on Friday morning, down $0.88 (-2.77%). Year-to-date, IDT has gained 9.80%, versus a 3.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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