The tech sector remains popular among investors due to the constant innovations and disruptions that could reasonably drive its growth. Rising investments in digitization and the adoption of cutting-edge technologies into the everyday functioning of organizations are boosting the tech industry’s prospects. Moreover, with interest rate cuts in the offing, tech companies could be well-placed for growth.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the technology industry’s prospects.
The technology industry has suffered due to the Fed’s aggressive rate hikes since last year. The industry is susceptible to interest rates as it significantly depends on borrowing. Despite the four rate hikes this year, the tech-heavy Nasdaq Composite has gained significantly, returning 34.9% year-to-date, riding the hype around generative AI.
Tech stocks have gained momentum after the Fed announced its decision to keep interest rates steady for the second time in November. The central bank’s measures to bring inflation down to its target show results as inflation rose 3.2% year-over-year last month, below Wall Street estimates.
This has raised hope among analysts that the Fed might stop raising interest rates. The market believes the recent economic data will likely push the Fed to cut. This could benefit technology companies.
The tech industry keeps evolving with new trends. Global tech firms invest heavily in research and development, staying ahead and creating innovative products. This makes the industry one of the world’s largest and most profitable. Worldwide IT spending is projected to increase 3.5% year-over-year to $4.69 trillion in 2023 and grow 8% year-over-year to $5.07 trillion next year.
The Biden Administration recently launched the Public Wireless Supply Chain Innovation Fund, injecting $1.50 billion into developing open and interoperable networks. This funding aims to lead the implementation of open and interoperable 5G radio access networks, advancing technological progress in the United States.
The IT hardware market, driven by the growing needs of the IT industry for advanced solutions in digital transformation, cloud computing, and emerging technologies, is expected to reach $121.32 billion this year. It is projected to grow at a CAGR of 7.9%, reaching $177.11 billion by 2028.
Moreover, IT outsourcing has evolved beyond just cutting costs, thanks to cloud migrations and service choices. It’s fueled by organizational goals like business growth, enhancing customer experience, and staying competitive. The U.S. IT Services market is projected to grow at a CAGR of 6.5% to reach $592.43 billion by 2028.
Let’s take a closer look at the fundamentals of the featured stocks.
Extreme Networks, Inc. (EXTR)
EXTR provides software-driven networking solutions worldwide. It designs, develops, and manufactures wired, wireless, and software-defined wide area-network infrastructure equipment.
On November 7, 2023, EXTR unveiled ExtremeCloud Universal Zero Trust Network Access (ZTNA). This subscription service integrates network, application, and device security, simplifying management and enhancing security across locations such as campuses and remote sites. Universal ZTNA ensures consistent security policies, cost efficiency, and streamlined user network access management.
Nabil Bukhari, Chief Technology Officer and Chief Product Officer at EXTR, foresees Universal ZTNA as a key cloud-based solution for securing the Infinite Enterprise. He stressed its simplicity, cost-effectiveness, and the capability to ensure secure access to any application from any device, anywhere.
In terms of the trailing-12-month gross profit margin, EXTR’s 58.55% is 19.8% higher than the 48.88% industry average. Likewise, its 13.70% trailing-12-month levered FCF margin is 69.2% higher than the industry average of 8.10%. Furthermore, the stock’s 85.96% trailing-12-month Return on Common Equity is significantly higher than the industry average of 0.80%.
EXTR’s total net revenues for the first quarter ended September 30, 2023, increased 18.6% year-over-year to $353.14 million. The company’s non-GAAP operating income increased 72.8% year-over-year to $62.49 million.
Its non-GAAP net income increased 71.8% year-over-year to $46.54 million. Also, its non-GAAP net income per share came in at $0.35, representing an increase of 75% year-over-year.
Street expects EXTR’s EPS and revenue for the quarter ending December 31, 2023, to increase 7% and 0.7% year-over-year to $0.29 and $320.51 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has declined 2.2% to close the last trading session at $16.42.
EXTR’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 an A grade for Quality and a B for Growth and Value. Within the Technology – Communication/Networking industry, it is ranked #3 out of 45 stocks. Click here to access EXTR’s Momentum, Stability, and Sentiment ratings.
Hackett Group Inc. (HCKT)
HCKT is a global strategic advisory and technology consulting firm. It has three segments: Global Strategy & Business Transformation, Oracle Solutions, and SAP Solutions. The company provides online resources, best practice accelerators, advisory services, research insights, peer interaction, benchmarking services, business transformation practices, and Oracle and SAP solutions for clients’ specific needs.
In terms of the trailing-12-month net income margin, HCKT’s 12.47% is 512.9% higher than the 2.03% industry average. Likewise, its 20.36% trailing-12-month EBITDA margin is 122.5% higher than the industry average of 9.15%. Furthermore, the stock’s 1.43x trailing-12-month asset turnover ratio is 129.3% higher than the industry average of 0.62x.
For the third quarter ended September 29, 2023, HCKT’s total revenues increased 5.3% year-over-year to $75.86 million. Its operating income came in at $13.74 million. In addition, the company’s adjusted net income came in at $11.42 million. Its adjusted net income per common share stood at $0.41, representing an increase of 10.8% over the prior-year quarter.
For the quarter ending December 31, 2023, HCKT’s EPS and revenue are expected to increase 2.8% and 0.9% year-over-year to $0.37 and $70.76 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 19.3% to close the last trading session at $22.25.
HCKT’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Stability and Quality. Within the A-rated Outsourcing – Tech Services industry, it is ranked first out of 9 stocks.
In total, we rate HCKT on eight different levels. Beyond what we stated above, we also have given HCKT grades for Growth, Value, Momentum, and Sentiment. Get all HCKT ratings here.
Quantum Corporation (QMCO)
QMCO provides products for storing and managing digital video and unstructured data in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company offers products for high-performance data applications, video surveillance, data archiving, and more.
On October 11, 2023, QMCO announced new DXi Edge-Core-Cloud Bundles, offering optimized data replication and cloud tiering capabilities with up to 70X greater storage and networking efficiency. Based on Quantum DXi-Series Backup Appliances, these bundles provide a comprehensive data protection fabric for organization-wide use.
Brian Pawlowski, Chief Development Officer at QMCO, highlighted that their end-to-end platform helps customers manage unstructured data across the data lifecycle. He emphasized the flexibility to create customized hybrid cloud workflows. He pointed out the new ActiveScale Cold Storage bundles and their easy purchase and deployment, facilitating quick benefits realization.
On September 13, 2023, QMCO announced new pre-configured bundles for easier purchase and deployment of Quantum ActiveScale Cold Storage. These bundles offer a cost-effective way for customers to manage large amounts of data for business and compliance purposes, enabling control over costs and ensuring fast, easy access to data.
In terms of the trailing-12-month Capex/Sales, QMCO’s 2.91% is 23.7% higher than the 2.35% industry average. Likewise, its 1.89x trailing-12-month asset turnover ratio is 203.5% higher than the industry average of 0.62x.
QMCO’s total revenue for the fiscal first quarter that ended June 30, 2023, stood at $91.79 million. The company’s non-GAAP gross profit rose 2.1% year-over-year to $35.18 million. Its total non-GAAP operating costs declined 2.3% year-over-year at $35.45 million. Moreover, its adjusted EBITDA rose 122.8% year-over-year to $771 thousand.
Street expects QMCO’s revenue for the fiscal year ending March 31, 2025, to increase 4.6% year-over-year to $370.05 million. Over the past month, the stock has declined 38.6% to close the last trading session at $0.37.
QMCO’s solid fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value. Within the B-rated Technology – Hardware industry, it is ranked #16 out of 39 stocks. To see QMCO’s Growth, Momentum, Stability, Sentiment, and Quality ratings, click here.
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EXTR shares were trading at $16.54 per share on Friday afternoon, up $0.12 (+0.73%). Year-to-date, EXTR has declined -9.67%, versus a 19.10% 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. More...
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