The tech sector is witnessing substantial growth, fueled by companies' investments in advanced technologies for digital transformation, streamlining of operations, and productivity enhancement. Moreover, the heightened demand for faster connectivity, consumer electronics, and advanced networking equipment adds further optimism to the industry's outlook.
Given this backdrop, investors could consider buying quality tech stocks Zoom Video Communications, Inc. (ZM), TDK Corporation (TTDKY), Brother Industries, Ltd. (BRTHY), N-able, Inc. (NABL), and Gilat Satellite Networks Ltd. (GILT).
Global IT spending is projected to reach $5.06 trillion in 2024, an 8% increase from 2023. The automation of operations, digital transformation initiatives, and the adoption of advanced technologies like Generative AI are driving the demand for tech services. The global IT services market is anticipated to reach $1.36 trillion this year and is further expected to expand at a CAGR of 6.8%, reaching $1.77 trillion by 2028.
Meanwhile, businesses' growing need for advanced networking is fueled by emerging tech like edge computing, IoT devices, and cloud services. The proper functioning of such technologies demands robust electronics and high-speed networking devices. The global optical communication and networking equipment market is expected to grow at a CAGR of 15.8%, reaching $107.46 billion by 2030.
Moreover, the demand for advanced hardware is rising to meet the complex processing demands and increasing workloads. The IT hardware market is expected to grow at a 7.9% CAGR, reaching $191.03 billion by 2029. Also, as devices become automated, interconnected, and smarter, the demand for high-quality components is growing.
The global electronic components market is expected to grow at a CAGR of 6.8% to reach $368.40 billion by 2032. Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR Fund’s (XLK) 29% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the five tech stocks mentioned above.
Zoom Video Communications, Inc. (ZM)
ZM provides a unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company offers Zoom Meetings, Zoom Phone, Zoom Chat, Zoom Rooms, Zoom Conference Room Connector, Zoom Events, OnZoom, and Zoom Webinars.
On March 25, 2024, ZM launched Zoom Workplace, its AI-powered collaboration platform, on AWS Marketplace. This allows customers to conveniently buy Zoom Workplace products, like Meetings and Team Chat, via AWS Marketplace, simplifying tech purchases and optimizing AWS resources.
On March 25, 2024, ZM and Avaya announced a strategic partnership to enhance collaboration experiences for global enterprises, with Avaya integrating Zoom Workplace, ZM’s AI-powered platform, into its Communication & Collaboration Suite.
This integration offers streamlined communication management and enhanced collaboration tools for Avaya's enterprise customers, preserving existing investments while leveraging ZM’s innovative solutions.
In terms of the trailing-12-month EBIT margin, ZM’s 13.21% is 175.5% higher than the 4.80% industry average. Its 33.24% trailing-12-month levered FCF margin is 248.7% higher than the 9.53% industry average. Likewise, its 2.80% trailing-12-month Capex / Sales is 20.8% higher than the industry average of 2.32%.
ZM’s revenues for the fourth quarter ended January 31, 2024, increased 2.6% year-over-year to $1.15 billion. The company’s non-GAAP net income and net income per share increased 21.1% and 16.4% from the prior-year quarter to $443.97 million and $1.42, respectively. Also, as of January 31, 2024, the company’s total liabilities amounted to $1.91 billion, compared to $1.92 billion as of January 31, 2023.
Analysts expect ZM’s EPS and revenue for the quarter ending April 30, 2024, to increase 2.4% and 2% year-over-year to $1.19 and $1.13 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has declined 4.7% to close the last trading session at $59.45.
ZM’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 Growth, Value, and Quality. Within the Technology - Services industry, it is ranked #7 out of 79 stocks. To see ZM’s Momentum, Stability, and Sentiment ratings, click here.
TDK Corporation (TTDKY)
Headquartered in Tokyo, Japan, TTDKY and its subsidiaries manufacture and sell electronic components internationally. The company operates through Passive Components, Sensor Application Products, Magnetic Application Products, Energy Application Products, and Other segments.
On April 9, 2024, TTDKY announced the B40910 series of hybrid polymer capacitors, which offer very high ripple current capability (up to 4.6 A), low ESR, and a wide temperature range. These capacitors are suitable for demanding applications in automotive and industrial electronics.
On January 9, 2024, TTDKY and Goodyear announced a collaboration to advance tire intelligence technologies, aiming to develop sensors and related tech for vehicles and tire applications, enhancing vehicle performance and safety.
In terms of the trailing-12-month Return on Common Equity, TTDKY’s 6.31% is 74.9% higher than the 3.61% industry average. Likewise, its 3.73% trailing-12-month Return on Total Capital is 56.1% higher than the industry average of 2.39%. Its 0.64x trailing-12-month asset turnover ratio is 5.3% higher than the industry average of 0.61x.
For the fiscal third quarter that ended December 31, 2023, TTDKY’s net sales came in at ¥559.25 billion ($3.62 billion). Its operating profit increased 2.7% year-over-year to ¥70.20 billion ($453.92 million). Likewise, its net profit attributable to owners of parent and EPS came in at ¥65.30 billion ($422.23 million) and ¥171.88, up 30.8% each over the prior-year quarter, respectively.
For the quarter ending September 30, 2024, TTDKY’s EPS is expected to increase 38.3% year-over-year to $0.95. Its revenue for the same quarter is expected to increase 0.9% year-over-year to $3.72 billion. Over the past year, the stock has gained 34.4% to close the last trading session at $45.77.
It’s no surprise that TTDKY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Stability, and Sentiment. Within the B-rated Technology - Hardware industry, it is ranked #4 out of 38 stocks. In total, we rate TTDKY on eight different levels. Beyond what we stated above, we also have given TTDKY grades for Value, Momentum, and Quality. Get all the TTDKY ratings here.
Brother Industries, Ltd. (BRTHY)
Headquartered in Nagoya, Japan, BRTHY manufactures and sells communications and printing equipment in Japan, the Americas, Europe, Asia, Oceania, the Middle East, Africa, and internationally. It operates through Printing & Solutions, Machinery, Domino, Nissei, Personal & Home, and Network & Contents segments.
On February 2, 2024, BRTHY announced the completion of Factory 3 for its manufacturing subsidiary, BROTHER INDUSTRIES (PHILIPPINES), INC., located in Tanauan City, Batangas. The new facility will manufacture printers, All-in-Ones, labeling systems, and consumables, with solar panels contributing to renewable energy use.
In terms of the trailing-12-month Capex / Sales, BRTHY’s 4.73% is 103.9% higher than the 2.32% industry average. Likewise, its 5.24% trailing-12-month net income margin is 100.9% higher than the 2.61% industry average. Additionally, its 13.37% trailing-12-month EBITDA margin is 39.6% higher than the 9.58% industry average.
BRTHY's total revenue for the fiscal third quarter that ended on December 31, 2023, amounted to ¥213.13 billion ($1.38 billion). The company's gross profit increased 11.4% year-over-year, reaching ¥90.79 billion ($587.05 million). Moreover, its profit for the period grew 39.3% from the year-ago value to ¥17.71 billion ($114.51 million), and its EPS rose 39.3% year-over-year to ¥69.11.
Street expects BRTHY’s revenue for the quarter ending September 30, 2024, to increase 3.2% year-over-year to $1.37 billion. Over the past year, BRTHY’s stock has gained 25.3% to close the last trading session at $37.
BRTHY’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, Momentum, and Stability and a B for Quality. It is ranked first out of 43 stocks in the Technology - Electronics industry. To access BRTHY’s Growth and Sentiment grades, click here.
N-able, Inc. (NABL)
NABL provides cloud-based software solutions for managed service providers. The company's solutions enable MSPs to support digital transformation and growth within small and medium-sized enterprises. Its software platform is designed to be an enterprise-grade solution that serves as an operating system for its MSP partners and scales as their businesses grow.
In terms of the trailing-12-month gross profit margin, NABL’s 84.27% is 72.3% higher than the 48.90% industry average. Likewise, its 2.01% trailing-12-month Return on Total Assets is 33.3% higher than the 1.51% industry average. Additionally, its 16.83% trailing-12-month EBIT margin is 250.8% higher than the industry average of 4.80%.
For the fiscal fourth quarter ended December 31, 2023, NABL’s subscription and other revenue increased 13.2% year-over-year to $108.42 million. Its non-GAAP gross profit rose 12.5% year-over-year to $91.65 million. The company’s non-GAAP operating income rose 25% year-over-year to $33.28 million.
Moreover, its non-GAAP net income increased 10.3% over the prior-year quarter to $19.83 million. Also, its non-GAAP earnings per share rose 10% year-over-year to $0.11.
Analysts expect NABL’s EPS and revenue for the quarter ended March 31, 2024, to increase 16.8% and 11.4% year-over-year to $0.09 and $111.19 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has declined 6.5% to close the last trading session at $12.19.
NABL’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth and Stability. It is ranked #6 in the Technology - Services industry. To see NABL’s Value, Momentum, and Quality ratings, click here.
Gilat Satellite Networks Ltd. (GILT)
Headquartered in Petah Tikva, Israel, GILT and its subsidiaries provide satellite-based broadband communication solutions in Israel, the United States, Peru, and internationally. It operates in three segments: Satellite Networks, Integrated Solutions, and Network Infrastructure and Services.
On April 9, 2024, GILT announced the development of a multimillion-dollar next-generation SOTM/SOTP modem for military applications, designed to provide high-speed, secure satellite communications with advanced capabilities for battlefield superiority, emphasizing their expertise in mission-critical solutions and customer trust in delivering innovative technology.
On April 9, 2024, GILT announced a multimillion-dollar order from a top IFC Service Provider to enhance In-Flight Connectivity with its Taurus Aero modems, emphasizing their advanced satellite communication solutions and ongoing commitment to delivering superior IFC experiences in aviation.
In terms of the trailing-12-month EBIT margin, GILT’s 10.55% is 120.1% higher than the 4.80% industry average. Its 15.59% trailing-12-month EBITDA margin is 62.8% higher than the 9.58% industry average. Likewise, its 6.53% trailing-12-month Return on Total Capital is 173% higher than the industry average of 2.39%.
GILT’s revenues for the fiscal year ended December 31, 2023, increased 10.9% year-over-year to $266.09 million. Its non-GAAP gross profit rose 21.4% over the prior-year quarter to $105.840 million. Its non-GAAP net income rose 88.7% over the prior-year quarter to $19.91 million. Also, its non-GAAP EPS came in at $0.35, representing an increase of 84.2% year-over-year.
Street expects GILT’s revenue for the quarter ended March 31, 2024, to increase 30.8% year-over-year to $77.10 million. Its EPS for the fiscal 2025 is expected to grow 18.2% year-over-year to $0.39. Over the past year, the stock has gained 9.7% to close the last trading session at $5.31.
GILT’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 first out of 47 stocks in the Technology - Communication/Networking industry. It has an A grade for Sentiment and a B for Value. Click here to see GILT’s Growth, Momentum, Stability, and Quality 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.
ZM shares were trading at $59.11 per share on Monday morning, down $0.34 (-0.57%). Year-to-date, ZM has declined -17.80%, versus a 4.85% 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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