The consecutive rate hikes this year have marred the performance of tech stocks. The tech-heavy Nasdaq composite has lost 29.6% year-to-date. However, following favorable inflation data in October, the Fed is expected to slow down its rate hike aggression, which might bode well for the tech sector.
Moreover, the U.S. labor market remains tight. The U.S. economy added 263,000 jobs in November, despite widespread macro headwinds. Also, tech companies are preparing themselves to beat any potential slowdown. They are strengthening their cash flows and investing in new capabilities to shield themselves from looming recession fears.
Furthermore, the IT Services industry is expected to grow at a 7.1% CAGR until 2027. Given this backdrop, fundamentally strong tech stock Box, Inc. (BOX) could be an ideal buy now. However, Uber Technologies, Inc. (UBER) might be best sold short, considering its weak fundamentals.
Stock to Buy:
Box, Inc. (BOX)
BOX provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device.
BOX’s trailing-12-month Price/Cash Flow of 15.72x is 17.7% lower than the industry average of 19.10x.
Its trailing-12-month gross profit margin of 73.52% is 47.7% higher than the industry average of 49.77%. Its trailing-12-month levered FCF margin of 31.14% is 316.1% higher than the industry average of 7.48%.
BOX’s revenue increased 11.6% year-over-year to $249.95 million for the third quarter that ended September 30, 2022. Its gross profit came in at $185.46 billion, up 15.2% year-over-year.
Moreover, its EPS came in at $0.03, compared to a loss per share of $0.12 in the year-ago period. Also, its net cash flow from operating activities came in at $69.73 million, up 51.3% year-over-year.
Analysts expect BOX’s revenue to increase 13.4% year-over-year to $991.88 million in 2023. Its EPS is estimated to grow 36.5% year-over-year to $1.16 in 2023. Over the past year, the stock has gained 7.4% to close the last trading session at $27.80.
BOX’s strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and Quality and a B for Value. Within the Technology - Services industry, it is ranked #4 out of 77 stocks. Click here for the additional POWR Ratings for Momentum, Stability, and Sentiment for BOX.
Stock to Avoid:
Uber Technologies, Inc. (UBER)
UBER develops and operates proprietary technology applications in the United States, Canada, Latin America, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Mobility; Delivery; and Freight. It provides ride-hailing services through its mobility business, food, grocery, and other delivery services through its delivery business, and freight shipping services through its freight business.
On September 25, 2022, Pomerantz LLP announced a class action lawsuit against UBER and certain of its officers. The lawsuit seeks to recover damages caused by the Defendants’ violations of the federal securities laws.
UBER’s total cost and expenses came in at $8.84 billion for the third quarter that ended September 30, 2022, up 63.2% year-over-year. Its total liabilities came in at $23.71 billion for the period ended September 30, 2022, compared to $23.43 billion for the period ended December 31, 2021.
UBER’s EPS is estimated to decrease 407% year-over-year to negative $5.07 in 2022. It missed EPS estimates in all four trailing quarters. Over the past year, the stock has lost 30.1% to close the last trading session at $26.92.
UBER’s POWR Ratings are consistent with this bleak outlook. It has an overall D rating equates to Sell in our POWR Ratings system. It has a D grade for Value and Stability. It is ranked #58 in the same industry.
We’ve also rated UBER for Momentum, Sentiment, Growth, and Quality. Get all UBER ratings here.
BOX shares were unchanged in premarket trading Wednesday. Year-to-date, BOX has gained 6.15%, versus a -16.12% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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