In an era defined by rapid digitalization, technological innovation, and the relentless pursuit of efficiency, the tech sector has emerged as a beacon of opportunity for savvy investors. Despite facing macroeconomic challenges, the tech sector is poised for growth due to the strong demand.
The ongoing rapid digitalization across various industries is anticipated to sustain investments in the technology field. Moreover, an increasing number of businesses are opting for cloud-hosted applications to support their daily activities. This shift toward cloud computing services is anticipated to fuel the need for IT services.
Revenue in the IT service industry is expected to show a CAGR of 6.7%, resulting in a market volume of $628.80 billion by 2028.
In addition, the tech support services industry’s expansion is driven by increased digital technology adoption, cost-effective solutions, and the need for software expertise. Additionally, the industry benefits from addressing cyberattack vulnerabilities, especially in North America, where cyber threats are prevalent.
As a result, the global tech support services industry is on a growth trajectory, expected to reach $111 billion by 2033 from $66.3 billion this year, at a 5.3% CAGR.
Furthermore, AI is proven to be a significant revolutionary element of the upcoming digital era, and industry layers are working to make AI more accessible for enterprise use cases. Also, Artificial Intelligence as a Service, or AIaaS, is being used by companies to obtain a competitive advantage over the cloud.
The global artificial intelligence market is projected to expand at a CAGR of 37.3% until 2030.
With these favorable trends, let’s dive into the fundamentals of these Technology – Services stocks, starting with the third choice.
Stock #3: Uber Technologies, Inc. (UBER)
UBER operates technology applications globally, connecting consumers to various transportation options and services like ridesharing, carsharing, and micromobility. Its three segments include Mobility; Delivery; and Freight.
UBER’s trailing-12-month gross profit margin of 32.06% is 5.8% higher than the industry average of 30.31%. The stock’s trailing-12-month asset turnover ratio of 1.08x is 33.4% higher than the 0.81x industry average.
On August 11, UBER announced a collaboration with grocery chain Hy-Vee to offer on-demand and scheduled grocery delivery to customers across the Midwest. Since launching in July 2020, UBER has seen consistent growth in the U.S. for its grocery category through partnerships.
On July 12, UBER partnered with Domino’s Pizza Inc (DPZ), the world’s largest pizza company, for a new global agreement. This collaboration will enable U.S. customers to order Domino’s products via Uber Eats and Postmates apps, with deliveries carried out by Domino’s trained experts. The rollout begins in four pilot markets this fall, with nationwide availability expected by the end of 2023.
In the fiscal second quarter that ended June 30, 2023, UBER’s revenue increased 14.3% year-over-year to $9.23 billion. Its adjusted EBITDA registered a rise of 151.6% year-over-year to $916 million. Net income attributable to UBER came in at $394 million and $0.18 per share, registering substantial increases from the previous-year quarter.
Analysts expect UBER’s revenue to increase 14.5% year-over-year in the current quarter (ending September 2023) to $9.55 billion. Additionally, it topped the consensus revenue estimates in three of the trailing four quarters, which is impressive.
Shares of UBER have soared 90.2% year-to-date and 66% over the past year to close the last trading session at $47.04.
UBER’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
UBER has an A grade for Sentiment and a B for Growth and Quality. In the 77-stock Technology – Services industry, the stock is ranked #23.
Beyond the POWR Ratings highlighted above, we also have rated UBER for Value, Momentum, and Stability. Get all UBER ratings here.
Stock #2: CSP Inc. (CSPI)
CSPI develops and markets IT integration solutions, security products, managed IT services, cloud services, purpose-built network adapters, and cluster computer systems worldwide for commercial and defense customers. It operates in two segments, Technology Solutions and High Performance Products.
CSPI’s trailing-12-month net income margin of 7.89% is 288.2% higher than the 2.03% industry average. Its 1.00x asset turnover ratio is 62% higher than the 0.62x industry average.
On July 13, CSPI’s business ARIA Cybersecurity Solutions launched a breakthrough solution for protecting operational technology (OT) environments, which stops even the most advanced and dangerous cyberattacks before they harm.
ARIA Zero Trust PROTECT (AZT PROTECT™) is an advanced AI-driven endpoint protection solution that protects devices running critical applications in sectors such as pharmaceuticals, transportation, energy, utilities, smart manufacturing, and autonomous vehicles.
The company pays an annual dividend of $0.14, which translates to a yield of 1% on the prevailing price level. Its four-year average yield is 1.90%.
CSPI’s total sales increased 33% year-over-year to $17.71 million. Its gross profit registered a rise of 151.6% year-over-year to $916 million. Net income and net income per share grew 267.5% and 253.3% year-over-year to $2.51 million and $0.53 per share.
The stock has gained 107.3% over the past year and 21.7% over the past month, closing the last trading session at $16.
It’s no surprise that CSPI has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Momentum, Growth, Quality, and Sentiment. Within the same industry, it is ranked #16.
In addition to the POWR Ratings we’ve stated above, one can access CSPI’s ratings for Value and Stability here.
Stock 1: Mastech Digital, Inc. (MHH)
MHH provides digital transformation IT services to large, medium-sized, and small companies. It operates through two segments: Data and Analytics Services, and IT Staffing Services.
MHH’s trailing-12-month levered FCF margin of 10.91% is 99.8% higher than the 5.46% industry average. Its 1.98x asset turnover ratio is 145.1% higher than the 0.81x industry average.
On May 31, 2023, MHH announced its entry into the Engineering Staffing Services business. The company aims to provide top engineering talent to businesses in various industries, including Manufacturing, Automobiles, Aerospace, and more. Leveraging its extensive network, MHH plans to offer tailored staffing solutions for mission-critical engineering needs.
This move reflects its commitment to becoming a trusted partner for sourcing both IT and engineering talent in the evolving landscape of digital innovation and Industry 4.0.
MHH’s total revenues in the second quarter ended June 30, 2023, came in at $52.20 million. Its gross profit came in at $13.64 million. Its non-GAAP net income and EPS came in at $1.29 million and $0.11, respectively.
MHH’s EPS and revenue are expected to amount to $0.13 and $49.44 million, respectively in the fiscal third quarter ending September 2023.
Over the past three months, the stock has gained 5.5% to close the last trading session at $10.70.
MHH’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. MHH is ranked #15 in the same industry.
Click here to see MHH’s ratings for Growth, Momentum, Stability, and Sentiment.
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UBER shares were trading at $47.04 per share on Monday morning, down $0.19 (-0.40%). Year-to-date, UBER has gained 90.21%, versus a 18.87% 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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