The technology industry has not been able to maintain its last year’s performance so far this year because the economic recovery has motivated investors to rotate away from expensive tech stocks to cyclical stocks. This shift is evidenced by the Technology Select Sector SPDR Fund’s (XLK) 2.8% loss over the past month.
However, growing demand for tech solutions from almost all industries, and technological advances in cloud computing, artificial intelligence (AI), and 5G communications, among other areas, are expected to shape the industry’s future.
Fundamentally sound tech players Sharp Corporation (SHCAY), Diodes Incorporated (DIOD), and Extreme Networks, Inc. (EXTR) have witnessed price declines lately thanks to the broader industry’s downtrend, and they look undervalued now. So, given their solid growth prospects, we think betting on these stocks at their current price levels could generate significant returns in the near term.
Sharp Corporation (SHCAY)
Headquartered in Sakai, Japan, SHCAY manufactures and sells electronic components and consumer electronic products, among others. It operates through four segments: Smart Homes, Smart Business Solutions, Internet of Things (IoT) Electronics Devices and Advanced Display Systems.
The company’s revenue for its fiscal fourth quarter ended March 31, was $22.30 billion, which represents a 7.2% year-over-year increase. Its gross profit increased 4% from the same period last year to $3.90 billion. SHCAY’s net income increased 258.8% year-over-year to $479.33 million.
Analysts expect SHCAY’s annual revenue to be t $22.50 billion in fiscal 2022, which represents a 107.3% year-over-year increase. In terms of forward EV/Sales, SHCAY is currently trading at 0.63x, which is 60.4% lower than the 1.59x industry average. Its forward EV/EBITDA of 9.77x is also lower than the 11.73x industry average.
SHCAY announced on May 17 that it has been nominated by Fisker Inc. (FSR) to develop technologies that support next generation in-vehicle screens and interfaces. This collaboration might help it develop and deliver more creative products to the market. The stock has gained 65.9% over the past year to close yesterday’s trading session at $4.28. It is currently trading 24.5% below its $5.67, 52-week high.
It’s no surprise that SHCAY has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value, and a B grade for Stability and Momentum. Click here to see SHCAY’s ratings for Growth, Sentiment and Quality as well.
SHCAY is ranked #11 of 48 stocks in the B-rated Technology-Hardware industry.
Diodes Incorporated (DIOD)
A manufacturer and supplier of application-specific standard products within the discrete, logic, analog and mixed-signal semiconductor markets, DIOD’s products include diodes, transistors, and rectifiers. The company sells its products to the consumer electronics, computing, communications, industrial, and automotive markets, among others.
For its fiscal first quarter ended March 31, DIOD’s total revenues came in at $413.12 million, representing a 47.2% increase year-over-year. Its net profit for the quarter increased 85.7% from the same period last year to $39.50 million. The company’s EPS increased 128.2% year-over-year to $0.89.
For the current quarter, ending June 30, DIOD’s EPS and revenue are expected to increase 105.6% and 53%, respectively, year-over-year to $1.11 and $434.62 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. In terms of forward EV/Sales, DIOD is currently trading at 2.07x, which is 49.8% lower than the 4.12x industry average. Its forward P/S of 1.93x is 55% lower than the 4.29x industry average. DIOD strengthened its position in the linear ReDriver IC market with the introduction of its 1.8V PI2DPX1066, PI2DPX1217, and PI2DPX1263 earlier this month. Because these parts use a lower-level supply voltage and draw less power than competing products, they are expected to provide the company with a competitive edge over its peers. The stock has rallied 51.8% over the past year to close yesterday’s trading session at $74.23. DIOD is currently trading 18.5% below its 52-week high of $91.02.
DIOD’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Value, and a B grade for Growth and Sentiment. In addition to these ratings, one can see DIOD’s ratings for Stability, Quality and Momentum here.
DIOD is ranked #12 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.
Extreme Networks, Inc. (EXTR)
EXTR provides software-driven networking solutions for enterprise, data center, and service provider customers worldwide. Its revenue for fiscal third quarter, ended March 31, increased 20.9% year-over-year to $253.4 million. EXTR’s operating income came in at $11.20 million, up 129.1% year-over-year. Its net income for the quarter was $3.50 million, which represents a 107.8% rise from the same period last year. Its EPS increased 108.1% year-over-year to $0.03.
Analysts expect EXTR’s EPS and revenue to increase 500% and 22.8%, respectively, year-over-year to $0.18 and $264.73 million for the current quarter, ending June 30. Also, it surpassed the Street’s EPS estimates in three of the trailing four quarters. In terms of forward EV/Sales, it is currently trading at 1.57x, which is 61.9% lower than the 4.12x industry average. Its 1.49x forward P/S is 65.3% lower than the 4.29x industry average.
The company announced on April 27, 2021 that its ExtremeCloud IQ became the industry’s most comprehensively certified cloud network management platform, delivering customers the highest level of information security and data protection available, removing risk, and allowing its customers to move to the cloud with confidence. This might drive increasing demand in the near-term.
The stock has surged 260.1% over the past year to close yesterday’s trading session at $11.74. It is currently trading 2.7% below its 52-week high of $12.06, which it hit on April 29, 2021.
EXTR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Value, and a B grade for Growth and Quality. Click here to see the additional POWR Ratings for EXTR (Sentiment, Momentum and Stability).
EXTR is ranked #1 of 55 stocks in the B-rated Technology- Communication/Networking industry.
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SHCAY shares were trading at $4.42 per share on Friday afternoon, up $0.14 (+3.27%). Year-to-date, SHCAY has gained 19.46%, versus a 11.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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