3 Tech Stocks Riding the Wave to Success

NYSE: KN | Knowles Corporation  News, Ratings, and Charts

KN – Amid the global surge in digitization, the outsourcing of IT services, and 3D printing, the tech sector exhibits robust growth prospects. Hence, fundamentally strong tech stocks Knowles Corp (KN), Proto Labs (PRLB), and Hackett Group (HCKT) might be solid buys for success. Keep reading….

The global tech market thrives on digitization, agility, and remote work trends, fostering diverse industry growth. Therefore, investors could consider buying fundamentally strong tech stocks Knowles Corporation (KN), Proto Labs, Inc. (PRLB), and Hackett Group Inc. (HCKT) to ride the wave to success.

The global tech industry benefits from digital transformation, remote work tools, and growing cloud service adoption. The pandemic heightened the need for digitalization, driving demand for IT services.

In addition to the pandemic-induced changes, innovation, emerging technologies like Artificial Intelligence (AI) and 5G, and a constant quest for efficiency and connectivity are the driving forces behind the continuous growth and evolution of the global tech industry.

Moreover, the growth trajectory of the tech outsourcing market is propelled by heightened demand across sectors like BFSI, healthcare, and manufacturing. Factors such as increased digital strategy adoption, business continuity imperatives, and the expanding small and medium enterprises sector contribute significantly to market expansion.

The U.S. IT outsourcing market is projected to reach a revenue of $167.90 billion in 2023, with a CAGR of 10.7% from 2023 to 2028 to reach $278.70 billion by 2028. Globally, revenue in the market is expected to reach $460.10 billion this year, and it is anticipated to expand at a CAGR of 11.1% to reach $777.70 billion by 2028.

Furthermore, embracing AI and shape-morphing systems, with FDM as a popular technology, the 3D printing industry is rapidly advancing. Significant cost savings, a projected 17% market growth in 2023, and a shift toward larger production runs indicate widespread adoption in the aerospace, automotive, and medical sectors.

The global 3D printing materials market is anticipated to expand at a CAGR of 12% to reach about $4 billion by 2026.

The U.S. IT services market is expected to experience continuous growth from 2023 to 2028, with a total increase of $174.2 billion or 38.3%. It is expected to reach a new peak of $628.84 billion in 2028 after eight consecutive years of growth.

Considering these conducive trends, let’s examine the fundamentals of the three tech stock picks.

Knowles Corporation (KN)

KN provides audio and electronic solutions for consumer electronics, medtech, defense, electric vehicles, industrial, and communications markets. The company operates through three segments: Precision Devices; Medtech & Specialty Audio; and Consumer MEMS Microphones.

KN’s trailing-12-month EBIT margin of 7.96% is 66.4% higher than the 4.78% industry average. Its trailing-12-month EBITDA margin of 14.63% is 61.8% higher than the 9.04% industry average.

On November 7, KN collaborated with JLab to integrate KN’s RAN balanced armature drivers into the Epic Lab Edition true wireless earbuds. The partnership aims to deliver premium sound quality with crisp treble and rich bass. Additionally, they include Smart active noise cancellation, Hi-Res Audio support, and a 13-hour battery life per earbud, totaling more than 56 hours of playtime.

On October 20, KN and Edifier partnered to develop the NeoBuds Pro 2 True Wireless Stereo (TWS) earbuds, featuring Knowles RAN balanced armature receivers and SiSonic™ MEMS microphone technology.

The premium earbuds offer high-quality wireless audio with LHDC 5.0 HD codec, advanced noise cancellation, and personalized sound experiences through a mobile app, setting new benchmarks in TWS technology. These collaborations should bolster the company’s portfolio.

In the fiscal third quarter that ended September 30, 2023, KN’s revenues amounted to $175.10 million. The company achieved non-GAAP gross profit of $78.10 million, up 13.8% year-over-year. Its adjusted EBITDA and non-GAAP EPS grew 16.8% and 24% from the previous year’s quarter to $44.40 million and $0.31, respectively.

For the nine months ended September 30, the company’s cash and cash equivalents at the end of the period increased 81% year-over-year to $75.10 million.

KN’s revenue and EPS are expected to grow 35% and 300% year-over-year to $194.87 million and $0.20, respectively, for the first quarter ending March 2024. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.

The stock has soared 9.3% over the past year and 20.7% over the past month to close the last trading session at $16.16.

KN’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

KN has a B grade for Growth, Sentiment, and Quality. Within the B-rated Technology – Electronics industry, it is ranked #8 out of 40 stocks.

Click here for KN’s additional Value, Momentum, and Stability ratings.

Proto Labs, Inc. (PRLB)

PRLB is a global e-commerce digital manufacturer that specializes in custom prototypes and on-demand production parts. The company offers a variety of manufacturing services, including injection molding, CNC machining, 3D printing, and sheet metal fabrication. It serves developers and engineers across different industries.

PRLB’s trailing-12-month gross profit margin of 43.44% is 43.3% higher than the 30.31% industry average. Its trailing-12-month levered FCF margin of 11.47% is 89.2% higher than the 6.07% industry average.

In July, PRLB expanded its CNC machining capabilities to offer accelerated anodizing and chromate plating on aluminum components. This enhancement enables customers to receive custom machined parts with plating in as fast as four days, from quote to shipping.

This addition enhances PRLB’s CNC machining options, catering to the prototyping and production needs of customers with quick-turn plating solutions.

During the third quarter ended September 30, 2023, PRLB’s total revenue amounted to $130.71 million, up 7.4% year-over-year. The company achieved non-GAAP gross profit and net income of $60.09 million and $13.22 million, up 10.2% and 21.4% from the previous-year quarter, respectively. Its adjusted EBITDA grew 9% year-over-year to $23.94 million.

Street expects PRLB’s revenue and EPS to grow 6.2% and 17.3% year-over-year to $122.72 million and $0.31 for the fourth quarter ending December 2023. The company surpassed the EPS estimates in each of the trailing four quarters.

Shares of PRLB increased 52.7% over the past year and 44.9% over the past month to close the last trading session at $36.30.

PRLB’s POWR Ratings reflect its sound outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

PRLB has a B grade for Growth, Momentum, and Quality. Within the Technology – 3D Printing industry, it is ranked #2 among five stocks.

In addition to the POWR Ratings stated above, one can access PRLB’s additional Value, Stability, and Sentiment ratings here.

Hackett Group Inc. (HCKT)

HCKT is a global strategic advisory and technology consulting firm operating in the United States, Europe, and internationally. The company provides services in three segments: Global Strategy & Business Transformation, Oracle Solutions, and SAP Solutions.

HCKT’s trailing-12-month EBIT margin of 19.20% is 301.4% higher than the 4.78% industry average. Its trailing-12-month EBITDA margin of 20.63% is 125.1% higher than the 9.04% industry average.

In the third quarter ended September 29, 2023, HCKT’s total revenue grew 5.3% from the previous year’s quarter to $75.86 million. The company generated operating income and adjusted net income of $13.74 million and $11.42 million. Also, its adjusted EBITDA grew 2.9% year-over-year to $17.35 million. 

For the fourth quarter of 2023, the company anticipates total revenue before reimbursements to fall within the $69 million to $70.40 million range. Adjusted EPS for the same period is projected to be between $0.36 and $0.38.

Analysts expect HCKT’s EPS to grow 2.8% year-over-year to $0.37 for the fourth quarter ending December 2023, while revenue is expected to grow marginally to $70.76 million. The company surpassed the revenue and EPS estimates in each of the trailing four quarters.

The stock has soared 11.4% over the past six months and 9.2% year-to-date to close the last trading session at $22.24.

HCKT’s positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

HCKT has a B grade for Stability and Quality. Within the A-rated Outsourcing – Tech Services industry, it is ranked first out of nine stocks.

To see HCKT’s additional POWR Ratings for Growth, Value, Momentum, and Sentiment, click here.

What To Do Next?

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KN shares were trading at $16.34 per share on Wednesday morning, up $0.18 (+1.11%). Year-to-date, KN has declined -0.49%, versus a 20.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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