The tech industry struggled last year due to the massive sell-off amid the Fed’s rate hikes and recession concerns. However, the industry looks well-positioned for long-term growth, thanks to the high demand for tech solutions and innovation. Therefore, investors could look to capitalize on fundamentally strong tech stocks Information Services Group, Inc. (III) and RADCOM Ltd. (RDCM).
As inflation rates continue its decelerating trend, the markets have been expecting the Federal Reserve to put a pause on rate hikes. Following its latest quarter percentage point increase, the Fed hinted at a halt in rate increases if inflation continues to ease as expected.
This could benefit the tech sector as they invest huge capital in R&D, which may not always generate returns. Moreover, the rising demand for advanced technology by enterprises prompts a higher level of spending by the industry. The latest forecast by Gartner projected worldwide IT spending to reach $4.6 trillion in 2023, an increase of 5.5% year-over-year.
The global technology market is expected to expand at a CAGR of 25.7%, reaching $3.17 billion by 2027. In addition, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 24% returns over the past six months.
Amid this backdrop, investors could benefit from fundamentally strong tech stocks III and RDCM
Information Services Group, Inc. (III)
III operates as a technology research and advisory company in the Americas, Europe, and the Asia Pacific. The company offers digital transformation services, sourcing advisory, managed governance and risk, network carrier, technology strategy and operations design, change management, and market intelligence and technology research and analysis services.
In terms of the trailing-12-month EBIT margin, III’s 9.95% is 113.6% higher than the 4.66% industry average. Its 6.26% trailing-12-month net income margin is 145.7% higher than the 2.55% industry average. Likewise, its 18.48% trailing-12-month Return on Common Equity is significantly higher than the industry average of 1.11%.
III’s revenues for the first quarter ended March 31, 2022, increased 8.2% year-over-year to $78.49 million. Its adjusted EBITDA increased 3.2% year-over-year to $10.98 million. The company’s adjusted EPS came in at $0.12, representing no change from the prior-year quarter.
III’s EPS for fiscal 2024 is expected to increase 7.3% year-over-year to $0.52. Its revenue for the quarter ending June 30, 2023, is expected to increase 6.5% year-over-year to $75.27 million. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. The stock has gained 11.3% year-to-date to close the last trading session at $5.12.
III’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Technology - Services industry, it is ranked #7 out of 79 stocks. It has a B grade for Value, Stability, and Sentiment.
We have also given III grades for Growth, Momentum, and Quality. Get all III ratings here.
RADCOM Ltd. (RDCM)
Headquartered in Tel Aviv, Israel, RDCM provides 5 G-ready cloud-native network intelligence and service assurance solutions for telecom operators or communication service providers (CSPs). It offers RADCOM ACE, including RADCOM Service Assurance, RADCOM Network Visibility, and RADCOM Network Insights
On May 1, 2023, RDCM announced the completion of the acquisition of the technology, intellectual property, and customer agreements of Continual Ltd.
Through this acquisition, Continual’s mobility experience analytics is expected to enrich the RDCM ACE portfolio for location and mobility analytics, further enhancing RDCM’s 5G analytics to ensure users enjoy the best customer experiences wherever they are.
In terms of the trailing-12-month gross profit margin, RDCM’s 72.39% is 46.3% higher than the 49.47% industry average. Likewise, its 18.74% trailing-12-month levered FCF margin is 174.5% higher than the industry average of 6.83%.
RDCM’s non-GAAP gross profit for the first quarter ended March 31, 2023, increased 11.2% year-over-year to $8.76 million. The company’s non-GAAP operating income came in at $833K, compared to a non-GAAP operating loss of $274K. Its non-GAAP net income increased 197.7% year-over-year to $1.83 million. Additionally, its non-GAAP EPS came in at $0.12, resulting in a 200% increase from the prior-year quarter.
RDCM’s revenue for the quarter ended March 31, 2023, is expected to increase 10.5% year-over-year to $11.74 million. It has a commendable earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has fallen 3.5% to close the last trading session at $9.70.
RDCM’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to a Buy. It is ranked #6 in the same industry. In addition, it has an A grade for Sentiment and a B from Growth, Stability, and Quality.
Click here to access all the ratings of RDCM for Value and Momentum.
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III shares were trading at $5.28 per share on Wednesday afternoon, up $0.16 (+3.13%). Year-to-date, III has gained 15.72%, versus a 7.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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