Stay-at-home mandates and social distancing norms have demonstrated the importance of technology. The technology sector has proven to be a big contributor  in combating the pandemic by enabling new modes of communication. Now, with macroeconomic conditions improving, the continuation of pandemic-driven trends along with increasing consumer spending should drive the sector’s momentum.

Also, 5G capabilities, which are seen as the next big growth area for the sector, have the potential to revolutionize every industry–from manufacturing to education to defense. The increasing deployment of 5G networks and gadgets should further boost the sector’s growth.

However, current pro-consumer regulatory policies are shaping the sector’s competitive landscape. Lower tariffs, network sharing, spectrum caps, and other support for new entrants, as well as an anti-trust bias and limited appetite for large M&As, have hindered the growth of industry leaders. In fact, their return on capital has been gradually declining over the past few years.

Against this backdrop, we think it wise to consider lesser-known stocks such as Viavi Solutions Inc. (VIAV) and Cambium Networks Corporation (CMBM). These companies possess strong corporate management and a much more favorable risk-to-reward ratio.

Click here to check out our Software Industry Report for 2021

Viavi Solutions Inc. (VIAV)

VIAV is a global provider of network test, monitoring and assurance solutions for communications service providers, enterprises, network equipment manufacturers, governments and avionics. It is also a leader in light management solutions for 3D sensing, anti-counterfeiting, consumer electronics, industrial, automotive and defense applications. The company’s segments include network enablement (NE), service enablement (SE), and optical security and performance products (OSP).

A couple of days ago, VIAV announced that it has been chosen by Openreach, the U.K.’s largest digital infrastructure firm, to accelerate its Full Fiber broadband deployment and enhance the quality of its build and experience for customers across the country. The partnership should  enable VIAV to expand its foothold in the foreign markets through innovations in remote fiber testing.

In January, VIAV collaborated with Mavenir to provide scalable test systems for validating radio access solutions in the country. VAIV will  check  network performance as experienced by end users across multiple cells and different radio access technologies. This should help  VIAV to emerge as a leading player in providing testing solutions against user expectations of service quality at a time when the supply chain for mobile network solutions is expanding.

VIAV’s net revenues have increased 5.3% sequentially to $299.90 million in the second quarter, ended January 2, 2021. Its gross profit has risen 6.3% from the previous quarter to $180.10 million, yielding a gross margin of 60.1%, up 60 basis points quarter-to-quarter. Its income from operations has risen 35.1% sequentially to $42.30 million, while EPS has improved 50% to $0.09 over the same period.

Analysts expect VIAV’s revenues to grow 13.4% year-over-year to $290.52 million in the current quarter (ending March 2021). The consensus EPS estimate of $0.17 for the third quarter indicates a 21.4% improvement from the year-ago value. The company has an impressive earnings surprise history, as it beat the Street EPS estimates in each of the trailing four quarters. The stock has gained 27.4% over the past six months.

VIAV’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

VIAV has a B grade for Momentum, Quality, Value and Growth. Of  54 stocks in the B-rated Technology – Communication/Networking industry, the stock is ranked #3.

In total, we rate VIAV on eight different levels. Beyond what we stated above, we also have given VIAV grades for Stability and Sentiment. Get all VIAV’s ratings here.

Cambium Networks Corporation (CMBM)

CMBM provides wireless broadband networking infrastructure solutions for network operators, including medium-sized wireless Internet service providers, enterprises and government agencies. The company’s multi-gigabit wireless fabric offers a compelling value proposition over traditional fiber and alternative wireless solutions. It primarily serves medium-sized wireless Internet service providers, enterprises, and government agencies.

This week,  CMBM entered a multi-year agreement with the school district of Burke County, N.C, to provide affordable, multi-gigabit high-density access points in classrooms. Considering the high number of schools in the  county, the agreement represents  a significant expansion in CMBM’s business operations.t

In  February, a report on benchmark testing was released by The Tolly Group that showed CMBM’s Wi-Fi 6 access points significantly exceeded the price-performance of  other brands. Cambium’s Wi-Fi 6 wireless access points  outperform competitors Aruba, Meraki and Ruckus in terms of performance and total cost of ownership (TCO). These results demonstrate the company’s commitment to delivering robust Wi-Fi performance and reliability while at the same time reducing ownership costs.

CMBM’s revenues have increased 29.3% year-over-year to $82.81 million in the fourth quarter ended December 31, 2020. Its non-GAAP gross profit has risen 26.3% from its  year-go value to $42.42 million, yielding a non-GAAP gross margin of 51.2%. Its adjusted EBITDA has risen 163.9% from the year-ago value to $13.91 million, while its EPS has improved 1125% to $0.41 over the same period.

Analysts expect CMBM’s revenues to grow 37.5% year-over-year to $83.07 million in the current quarter (ending March 31, 2021). A consensus EPS estimate of $0.33 for the first quarter represents  a 560% improvement from its  year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 214% over the past six months.

It’s no surprise that CMBM has an overall rating of B, which translates to Buy in our POWR Ratings system. CMBM has an A  grade  for Sentiment and Growth and a B for Quality. In the same industry, the stock is ranked #5.

Click here to see the additional POWR Ratings for CMBM (Stability, Momentum and Value).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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VIAV shares were trading at $15.62 per share on Friday afternoon, up $0.17 (+1.10%). Year-to-date, VIAV has gained 4.31%, versus a 2.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...

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