The technology sector has been on a solid run this year. The COVID-19 pandemic has driven demand for connectivity, remote financial transactions, collaborations, and cybersecurity-related services. Consequently, the tech-heavy Nasdaq has risen 31.8% so far this year. However, after leading the market higher since its March lows, tech stocks took a backseat after a promising vaccine news from Pfizer, Inc. (PFE) and BioNTech SE (BNTX) last week.
A coronavirus vaccine is looking like a real possibility next year. However, it will take time for a vaccine to practically contain the spread of the virus considering manufacturing and distribution challenges. With a new wave hitting the country after taking effect in European countries, the United States might further need to implement restrictions and stay-home orders. Hence, this tech sell-off is expected to be short lived and the sector is likely to recover quickly.
The work and learning from home culture are here to stay and could keep increasing dependence on digital platforms. Here are four tech stocks that should continue to soar next year because of strong fundamentals and a favorable backdrop: PayPal Holdings, Inc. (PYPL), Square, Inc. (SQ), CrowdStrike Holdings, Inc. (CRWD) and Okta, Inc. (OKTA).
PayPal Holdings, Inc. (PYPL)
PYPL is one of the most popular digital payment operating technology platforms that enables digital and mobile payments on behalf of consumers and merchants worldwide. It has over 361 million active users globally and is available in more than 200 markets around the world, enabling consumers and merchants to receive money in more than 100 currencies.
In line with the spike in the crypto rates and popularity in recent years, PYPL has launched a new service enabling its customers to trade cryptocurrencies directly from their PayPal account. Moreover, it rolled out a QR code touchless payment system into its point-of-sale systems and e-commerce rewards to boast digital payments amid the pandemic.
PYPL added more than 15.2 million new accounts in the third quarter of 2020 and witnessed a total payment volume (TPV) of $247 billion, growing 38% from the year-ago quarter. Merchant Services volume surged 40%, and represented 93% of TPV. Revenue increased 25% year-over-year to $5.46 billion. EPS for the quarter came in at $0.86, rising 121% year-over-year.
The shift to digital payments is one of the major trends that should only accelerate over the next couple of decades. Hence, analysts expect PYPL’s EPS to grow 19.5% next year. The stock closed Friday’s trading session at $188.62, gaining 74.4% year-to-date. It is presently trading 12.6% below its 52-week high of $215.83.
How does PYPL stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Industry Rank
B for Overall POWR Rating.
It is ranked #8 out of 46 stocks in the Consumer Financial Services industry.
Square, Inc. (SQ)
SQ develops and provides payment and point-of-sale solutions in the United States and internationally. It provides Square Register, a point-of-sale system that takes care of digital receipts, inventory, and sales reports, as well as provides analytics and feedback.
SQ is the fastest-growing fintech company in terms of digital wallet usage in the US. The company has recently expanded into banking by getting FDIC approval to offer small business loans and consumer financial products on its Cash App platform. The company strongly believes in cryptocurrency as an instrument of economic empowerment and has put 1% of its total assets, worth nearly $50 million, in bitcoin.
In the third quarter, SQ’s net revenue climbed 140% year-over-year to $3 billion on the back of its Cash App ecosystem. The company delivered a record gross profit of $794 million, rising 59% year over year. The gross payment volume on the Cash App platform was up 332% year-over-year to $2.9 billion. EPS for the quarter came in at $0.07 compared to the year-ago value of $0.06.
SQ has been efficiently leveraging relentless innovation allowing the company to accelerate growth even in the midst of a challenging economic backdrop. The market expects EPS to rise 52% next year. The stock closed Friday’s trading session at $177.19, gaining 183.2% year-to-date. It has recently hit its all-time high of $201.33 and is presently trading 12% below it.
SQ is rated a “Buy” in our POWR Ratings system, consistent with its strong momentum. It holds an “A” in Trade Grade, and a “B” for Buy & Hold Grade, Peer Grade, and Industry Rank. It is also ranked #23 out of 232 stocks in the Financial Services (Enterprise) industry.
CrowdStrike Holdings, Inc. (CRWD)
CRWD provides cloud-delivered solutions for next-generation endpoint protection in the United States and internationally. Leveraging artificial intelligence (AI), the CrowdStrike Falcon platform protects customers against cyberattacks on endpoints on or off the network by offering visibility and protection across the enterprise. The company had a total to 7,230 subscription customers at the end of its fiscal second quarter.
CRWD has completed the acquisition of Preempt Security, a leading provider of Zero Trust and conditional access technology for real-time access control and threat prevention at the end of September. Moreover, the company was identified as the fastest-growing endpoint security software vendor in the IDC Worldwide Endpoint Security Software Market Shares 2019 report.
The company is scheduled to release financial results for its fiscal third quarter that ended October 2020 on December 2nd. In the second quarter that ended July 2020, top-line was up 84% year-over-year to $199 million and annual recurring revenue (ARR) increased 87% year-over-year, or $104.5 million, to $790.6 million. CRWD added 969 net new subscription customers during the quarter, representing a 91% year-over-year growth. The company reported a loss of $0.14 per share, significantly improving from the year-ago loss of $0.4 per share.
Major organizations are shedding outdated systems and accelerating their move to modern cloud-native technologies to meet the demands of today’s threat landscape. Hence, analysts expect CRWD’s EPS to grow 333.3% next year. The stock closed Friday’s trading session at $132.18, gaining more than 165% year-to-date. It is presently trading 14.1% below its 52-week high of $153.90.
It’s no surprise that CRWD is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Peer Grade, and a “B” for and Buy & Hold Grade.
Okta, Inc. (OKTA)
OKTA is a cloud security company that provides identity and access management tools that enable users to securely access cloud-based applications from various devices in the United States and internationally. With over 6,500 pre-built integrations to applications and infrastructure providers, the company serves more than 8,950 organizations.
OKTA announced a partnership and new integration between the Okta Identity Cloud and Salesforce (CRM) Work.com in October, designed to help organizations and communities build trust with their employees and customers. The company has recently made major advancements in Okta Advanced Server Access to accelerate scalability and compliance of cloud infrastructure. It also launched the Okta Customer Identity Workflows in October, a new product that enables product builders and IT professionals to automate the most complex digital transformation identity processes.
OTKA is scheduled to release financial results for its fiscal third quarter that ended October 2020 on December 2nd. The company reported total revenue of $200.4 million, an increase of 43% year-over-year. Subscription revenue grew 44% year-over-year to $190.7 million. Total calculated billings were $198.1 million, rising 27% year-over-year. Non-GAAP EPS came in at $0.07, compared to the year-ago loss of $0.05 per share.
The three mega-trends that have been driving OKTA’s business for the past several years –the adoption of cloud and hybrid IT, digital transformation, and zero trust security – are all being accelerated globally by the current environment. Consequently, the market expects next year’s EPS to rise 1,200% year-over-year. OTKA closed Friday’s trading session at $221.80, gaining more than 92.3% year-to-date. The stock is presently trading 11.7% below its all-week high of $251.18.
OKTA’s POWR Ratings reflect a promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade, and a “B” for Buy & Hold Grade and Industry Rank. Among the 48 stocks in the Software – Business industry, it’s ranked #13.
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PYPL shares were trading at $191.23 per share on Monday afternoon, up $2.61 (+1.38%). Year-to-date, PYPL has gained 76.79%, versus a 13.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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