The tech sector has witnessed a massive sell-off this year amid the Fed’s aggressive rate hikes to battle high inflation. Technology stocks went from most loved during the pandemic to the most heavily sold. The sell-off has led several fundamentally solid tech stocks to decline substantially in price and now seem to be trading at a discount.
Fundstrat’s Tom Lee believes investors should take advantage of the dip to ensure long-term returns. He also expects technology demand to soar as companies try to offset labor shortage with tech, and the sector has a history of reviving itself after a market bottom.
“A lot of these companies whose values have gone down recently are still great companies, and maybe the value has been overreacted by the market,” billionaire investor and co-founder of private equity firm Carlyle Group David Rubenstein said.
Given this backdrop, fundamentally strong tech stocks AudioCodes Ltd. (AUDC), Extreme Networks, Inc. (EXTR), Fujitsu Limited (FJTSY), Jabil Inc. (JBL), and NTT DATA Corporation (NTDTY), which are currently trading at a discount, might be ideal investments.
AudioCodes Ltd. (AUDC)
AUDC, based in Lod, Israel, offers advanced communications software, products, and productivity solutions for the digital workplace. The company’s offerings include solutions, products, and services for unified communications, contact centers, VoiceAI business lines, and service provider businesses.
In April, AUDC announced that it had been approved as a partner for the Microsoft Corporation (MSFT) Operator Connect Accelerator, which is expected to enable the company to offer service providers simplified customer onboarding and operation through its AudioCodes Live Cloud solution. The partnership might benefit AUDC.
In terms of its forward EV/Sales, AUDC is trading at 2.14, 21.6% lower than the industry average of 2.73x. Its forward non-GAAP PEG multiple of 0.87 is 33.1% lower than the industry average of 1.30.
AUDC’s total revenues increased 12.8% year-over-year to $66.36 million in the first quarter ended March 31. Its gross profit grew 10.2% from the year-ago value to $44.36 million. The company’s non-GAAP net income was $11.16 million, and its non-GAAP net EPS was $0.33.
The consensus EPS estimate for the fiscal third quarter (ending September 2022) of $0.39 indicates a 1.8% year-over-year increase. The consensus revenue estimate of $71.58 million for the same quarter reflects a 12.9% increase from the same period last year.
The stock has gained 1.3% over the past five days and 0.7% intraday to close its last trading session at $22.40.
AUDC’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AUDC is rated an A in Quality and a B for Stability and Sentiment. Within the Technology – Communication/Networking industry, it is ranked #2 of 54 stocks. To see additional POWR Ratings for Growth, Value, and Momentum for AUDC, click here.
Extreme Networks, Inc. (EXTR)
EXTR operates as a software-driven networking solutions provider that designs, develops, and manufactures wired and wireless network infrastructure equipment and engages in software development.
In June, the company introduced a suite of new solutions, extending its ExtremeCloud portfolio to include new SD-WAN and AIOps with digital twin capabilities. The new solution suite might significantly add to the company’s revenue stream.
In May, the company announced an increase in its share repurchase authorization to $200 million over a three-year period beginning in the company’s upcoming fiscal year starting from July 1. This might bolster the company’s shareholder returns.
In terms of its forward non-GAAP PEG, EXTR is trading at 0.57x, 56.1% lower than the industry average of 1.30x. Its forward Price/Sales multiple of 1.05 is 61.6% lower than the industry average of 2.73.
In the third fiscal quarter ended March 31, EXTR’s total net revenue came in at $285.51 million, up 12.7% year-over-year. Non-GAAP net income and non-GAAP net income per share rose 32.6% and 31.3% from the prior-year period to $27.42 million and $0.21.
Analysts expect EXTR’s revenue for the fiscal year 2022 (ended June 2022) to be $1.10 billion, indicating an increase of 9.3% year-over-year, while its EPS is expected to improve 35.8% from the prior year to $0.77. In addition, EXTR has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
EXTR has declined 1.9% intraday to close its last trading session at $8.83.
It is no surprise that EXTR has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has a B grade for Growth, Value, and Quality. It is ranked #1 in the Technology – Communication/Networking Industry.
Beyond what we’ve stated above, we have also given EXTR grades for Momentum, Stability, and Sentiment. Get all the EXTR ratings here.
Fujitsu Limited (FJTSY)
FJTSY, headquartered in Tokyo, Japan, operates as an information and communication technology (ICT) company. The company operates through three segments, Technology Solutions; Ubiquitous Solutions; and Device Solutions.
FJTSY has successfully developed a new technology to accurately estimate human body postures from coarse-grained point cloud data obtained with a conventional millimeter-wave sensor. The company plans to deploy the newly developed technology at hospitals and nursing care facilities to support nurses and caregivers in visually monitoring patients and reacting to emergency situations.
In terms of its forward EV/Sales, FJTSY is trading at 0.89x, 67.4% lower than the industry average of 2.73x. Its forward EV/EBITDA multiple of 6.18 is 46.6% lower than the industry average of 11.57.
For the fiscal year ended March 31, FJTSY’s cash and cash equivalent balance increased 0.5% year-over-year to ¥484.02 billion ($3.57 billion). Its operating profit was ¥219.20 billion ($1.62 billion), while its profit for the year stood at ¥213.14 billion ($1.57 billion). The company’s EPS was ¥922.97.
Analysts expect FJTSY’s revenue for the fiscal year 2023 to be $27.68 billion, indicating a 107.9% year-over-year growth.
FJTSY has gained 3.4% over the last five days and marginally intraday to close its last trading session at $25.64
It is no surprise that FJTSY has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The stock has a B grade for Value and Quality. In the 80-stock Technology – Services industry, it is ranked #6.
We have also given FJTSY grades for Growth, Momentum, Stability, and Sentiment. Get all the FJTSY ratings here.
Jabil Inc. (JBL)
JBL supplies manufacturing services and solutions internationally. The company operates through its two segments, Electronics Manufacturing Services, and Diversified Manufacturing Services. The company serves 5G, wireless and cloud, networking and storage, automotive and transportation, healthcare and packaging, and mobility industries.
In June, JBL announced its collaboration with SolarEdge Technologies, Inc. (SEDG), a smart energy technology company, to help change how power is harvested and managed in photovoltaic (PV) systems. The manufacturing and supply chain solutions created by collaboration might benefit the company.
In terms of its forward non-GAAP P/E, JBL is trading at 6.82x, 59.5% lower than the industry average of 16.85x. Its forward EV/EBITDA multiple of 3.75 is 67.5% lower than the industry average of 11.57
For the third quarter ended May 31, JBL’s revenue increased 15.4% year-over-year to $8.33 billion. Its non-GAAP operating income rose 27.1% from the year-ago value to $352 million. The company’s non-GAAP earnings increased 24.2% year-over-year to $246 million, while its non-GAAP EPS grew 32.3% from the prior-year quarter to $1.72.
Street EPS estimate for the fourth quarter ending August 2022 of $2.14 reflects a rise of 48.7% year-over-year. Likewise, Street revenue estimate of $8.40 billion for the same quarter indicates an improvement of 13.3% from the prior-year period. Additionally, JBL has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
JBL’s stock has gained 0.5% intraday to close its last trading session at $50.78.
JBL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system.
JBL has an A grade for Growth and a B for Value, Sentiment, and Quality. In the Technology- Services industry, it is ranked #1. Click here to see the additional POWR Ratings for JBL (Momentum and Stability).
NTT DATA Corporation (NTDTY)
NTDTY is a global provider of IT and business services. The company operates through Public & Social Infrastructure; Financial; Enterprise & Solutions; North America; and EMEA & LATAM segments, serving various industries. It is headquartered in Tokyo, Japan.
On June 1, NTDTY announced that it had signed a definitive agreement to acquire a digital strategy and engineering company Postlight LLC. The acquisition is expected to bolster the company’s position as a digital innovation partner.
In March, NTDTY announced its acquisition of Vectorform, a digital transformation and innovation company based in Detroit. This is expected to expand the global digital engineering and design capabilities of the company.
In terms of its forward EV/Sales, NTDTY is trading at 0.93x, 65.8% lower than the industry average of 2.73x. Its forward EV/EBITDA multiple of 6.68 is 42.3% lower than the industry average of 11.57.
For the fiscal year ended March 31, NTDTY’s net sales increased 10.1% year-over-year to ¥2.55 trillion ($18.83 billion). Its operating income grew 52.8% from the year-ago value to ¥212.59 billion ($1.57 billion), while its net income attributable to shareholders of NTDTY improved 86.1% year-over-year to ¥142.98 billion (($1.05 billion). The company’s net income per share increased 86.1% from its year-ago value to ¥101.95.
The consensus revenue estimate of $24.42 billion for the fiscal year 2023 reflects a 200.8% increase from the prior year.
The stock gained 2.1% intraday to close its last trading session at $13.82.
The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. NTDTY is rated an A in Stability and a B in Growth, Value, and Quality.
Within the Technology – Services industry, NTDTY is ranked #4. To see additional POWR Ratings for Momentum and Sentiment for NTDTY, click here.
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AUDC shares were trading at $23.36 per share on Thursday afternoon, up $0.96 (+4.29%). Year-to-date, AUDC has declined -32.32%, versus a -17.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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