The COVID-19 pandemic has accelerated digital transformation and the requirement of business automation significantly. These, combined with the rapid adoption of advanced technologies for maintaining a remote lifestyle, are driving the growth of the technology market. According to the Forrester U.S. tech market growth forecast, the U.S. tech budget is expected to rise 9% to 10% in 2021.
Investors’ confidence in the technology industry is evident from the iShares Global Tech ETF’s (IXN) 11.8% returns over the past six months versus the SPDR S&P 500 ETF Trust’s (SPY) 9.6% gains. The growing demand for wireless technology, cloud computing, and increasing spending on strengthening analytical capabilities have created a positive outlook for the technology industry.
Thus, we think it could be wise to bet on quality tech stocks Ribbon Communications Inc. (RBBN), Alpha and Omega Semiconductor Limited (AOSL), and PCTEL, Inc. (PCTI), which look undervalued at their current price levels.
Ribbon Communications Inc. (RBBN)
RBBN is a technology company that delivers communications software, IP, and optical networking solutions to service providers, enterprises, and critical infrastructure sectors globally. The company also provides agility, including core to edge software-centric solutions, cloud-native offers, leading-edge security, and analytics tools, along with IP and optical networking solutions for 5G.
Last month, RBBN partnered with a communication network services and supply chain provider, KGPCo. Under this partnership, KGPCo will sell RBBN’s entire Cloud & Edge and IP Optical Solutions portfolio. RBBN should help service providers and utilities to modernize, enhance and improve their communications networks through this partnership.
RBBN’s total revenue for the second quarter ended June 30, 2021, increased marginally year-over-year to $211.21 million. The company’s gross profit grew 4.2% from the year-ago value to $128.43 million. Its net income came in at $23.24 million for the quarter, compared to a net loss of $8.25 million in the second quarter of 2020. Also, the company’s EPS amounted to $0.15, compared to a loss per share of $0.06 in the prior-year quarter.
Analysts expect RBBN’s revenue to increase 5.9% year-over-year to $946.79 million in the fiscal year 2022. Also, the company has an impressive earnings surprising history; it surpassed the consensus EPS estimates in each of the trailing four quarters. In addition, its EPS is expected to increase 23.3% in the current year.
In terms of forward EV/Sales, RBBN is currently trading at 1.41x, 65.6% lower than the industry average of 4.10x. Also, in terms of its forward Price/Sales, the stock is currently trading at 0.97x, 75.2% lower than the industry average of 3.92x. The stock has gained 54.5% over the past year.
RBBN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an A grade for Value, and a B for Sentiment. We’ve also graded RBBN for Momentum, Stability, Quality, and Growth. Click here to access all of RBBN’s ratings. RBBN is ranked #7 of 55 stocks in the B-rated Technology – Communication/Networking industry.
Alpha and Omega Semiconductor Limited (AOSL)
AOSL is a power semiconductor technology and business operation provider. The company integrates its discrete and IC semiconductor process technology, product design, and advanced packaging to develop high-performance power management solutions. Its portfolio of products targets high-volume applications, including LED lighting, consumer and industrial motor controls, and telecommunications equipment.
Last month, AOSL launched a new Type-C Power Delivery high voltage sink protection switch using the ideal diode methodology for reverse current protection. This high power with greater flexibility ideal diode should enable the company to provide compact, efficient, robust, and reliable solutions.
During the fiscal fourth quarter ended June 30, 2021, AOSL’s revenues increased 44.9% year-over-year to $177.31 million. The company’s gross profit grew 109.4% from the year-ago value to $60.58 million. Its operating income came in at $22.36 million, compared to an operating loss of $1.33 million in the prior-year quarter. Also, the company’s cash and cash equivalents increased 27.7% year-over-year to $202.41 million.
AOSL’s revenue is expected to increase 7.8% year-over-year to $707.93 million in the fiscal year 2022. In addition, the company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Moreover, its EPS is expected to increase by 16.7% in the current year. Over the past nine months, the stock has soared 42.2%.
In terms of forward EV/Sales, AOSL is currently trading at 1.45x, 64.6% lower than the industry average of 4.10x. Also, in terms of its forward Price/Sales, the stock is currently trading at 1.21x, 69.1% lower than the industry average of 3.92x.
AOSL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Value, and a B grade for Momentum and Sentiment.
In addition to the POWR Rating grades I’ve just highlighted, one can see AOSL’s ratings for Quality, Stability, and Growth here. AOSL is ranked #30 of 97 stocks in the B-rated Semiconductor & Wireless Chip industry.
PCTEL, Inc. (PCTI)
Incorporated in 1994, PCTI provides wireless connectivity and innovations in antenna systems, Industrial IoT devices, and test and measurement solutions. The company operates in three segments: Enterprise Wireless; Intelligent Transportation; and Industrial IoT. PCTI also develops and manufactures industrial-grade products to deliver critical wireless connectivity to its clients.
This month, PCTI introduced a new 5G configurable, Trooper Max 5G FR1 antenna platform for Intelligent Transportation and Public Safety applications. This low-profile antenna platform with its new technologies should allow the company to offer challenging intelligent transportation systems worldwide.
PCTI’s revenue increased 9.3% year-over-year to $21.68 million in the second quarter ended June 30, 2021. The company’s gross profit rose 4.4% from the year-ago value to $9.94 million. Its cash and cash equivalents grew 46.2% from $5.76 million as of December 31, 2020, to $8.43 million as of June 30, 2021.
For the fiscal year 2022, analysts expect PCTI’s revenue to increase 11.8% year-over-year to $96.7 million. It has surpassed the consensus EPS estimates in three of the trailing four quarters. The company’s EPS is estimated to increase 59.1% next year.
In terms of forward EV/EBITDA, PCTI is currently trading at 11.5x, 28.2% lower than the industry average of 16.02x. In terms of forward Price/Sales, the stock is currently trading at 1.30x, 66.8% lower than the industry average of 3.92x. The stock has gained over 7.5% over the past year.
It’s no surprise that PCTI has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Value, and a B for Sentiment and Quality.
Click here to see the additional POWR Ratings for PCTI (Growth, Momentum, and Stability). In the Technology – Communication/Networking industry, PCTI is ranked #9.
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RBBN shares were trading at $6.05 per share on Thursday afternoon, up $0.08 (+1.34%). Year-to-date, RBBN has declined -7.77%, versus a 16.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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