Because individuals and businesses have been forced to rely on technology to stay connected and operational amid the COVID-19 pandemic, the technology sector has witnessed unprecedented growth in revenues and earnings over the last year. Investors have rewarded companies that have capitalized on pandemic-driven opportunities. And irrespective of an anticipated vaccine-driven economic recovery, the sector is expected to continue growing this year and beyond because  many of the consumer habits adopted  during the pandemic will be hard to change.

However, there are certain technology companies that underperformed despite the secular tailwinds. These companies’ products  have not met changing consumer demand. As a result, their stock prices have declined over the past year.

The performance of International Business Machines Corp. (IBM), Mimecast Limited (MIME), and VeriSign, Inc. (VRSN) have failed to impress investors. And analysts do not  expect these companies to show improvement in their financials in the coming quarters. So, we think investors should avoid these stocks.

International Business Machines Corp. (IBM)

IBM delivers  IT products and solutions worldwide. The company’s stock has lost 11.7% over the past year.

IBM recently split off its IT services business, which will be managed by an as yet unnamed  new company. With the split, IBM plans to focus on its  hybrid cloud space and artificial intelligence (IA) businesses . However, despite initial optimism, the move has yet to paid off for IBM yet.

For the quarter ended December 31, 2020, the company saw a 6% decline in revenue versus the same period last year. The company’s EPS declined 66% during that  period.

For the quarter ended March 31, 2021, IBM  is expected to see a 1.1% decline in revenue and an 11.4%  decline in EPS.

IBM’s poor prospects are also apparent in its POWR Ratings. It has a Neutral rating for its overall POWR Rating and a D for Peer Grade. It is ranked #34 of 54 stocks in the Technology – Hardware industry.

Mimecast Limited (MIME)

MIME provides risk management and cloud security services. The company  has operations primarily in the U.S. the UK, and South Africa. MIME’s stock has declined 8.7% over the past year.

The cloud security company has recently been the victim of a hack in which  client data was compromised. The incident  could lead to a decline in customer confidence for MIME.

For the quarter ended September 31, 2020, the company added 500 net new customers to its roster. However, this represents  a decline from the 1200 net new customers  the company added in the quarter ended March 31, 2020.

MIME’s POWR Ratings are consistent with this underperformance. It has an overall rating of Neutral with a D for Trade Grade and Peer Grade. It is ranked #70 of 116 stocks in the Software – Application industry.

VeriSign, Inc. (VRSN)

VRSN operates network infrastructure, which includes the .com and .net domains. The company provides domain name registry services and has worldwide operations. VRSN’s stock has declined  7.2% over the past year.

The company has been witnessing a surge in domain name registrations driven  by the spread of COVID-19 . However, the trend may decline as market demand is satisfied and relatively fewer people register new domains going forward.

For the quarter ended September 30, 2020, the company’s operating margin declined 1.7 percentage points year-over-year to 65%. Its  cash flows from operating activities declined 32.6% during the same period. The company’s EPS is expected to decline 50.7% for the quarter ended March 31,  2021 and 16.2% in 2021.

VRSN’s poor prospects are also apparent in its POWR Ratings. It has a Neutral rating for its overall POWR Rating and a D for Peer Grade. It is ranked #25 of 46 stocks in the Internet – Services industry.

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IBM shares were trading at $122.45 per share on Thursday morning, down $0.02 (-0.02%). Year-to-date, IBM has declined -2.72%, versus a 1.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaryaman Aashind

Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...

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