While the tech industry is under pressure due to macroeconomic issues, its long-term prospects appear promising. So, quality tech stocks Science Applications International Corporation (SAIC), LiveRamp Holdings, Inc. (RAMP), and RADCOM Ltd. (RDCM) could be worth buying.
According to Gartner, Inc., global government IT services spending is expected to reach $209.10 billion in 2023, an 8.9% rise from 2022.
Also, IT services will be the largest spending category in 2023, thanks to the increased use of consulting services and infrastructure as a service (IaaS). IT services market is expected to reach almost $270 billion in 2023, representing a 9.3% growth over 2022.
This highlights IT service providers’ increasingly essential role in assisting banking and investment services providers in navigating emerging opportunities and challenges.
Furthermore, the IT Services industry is expected to grow at an 8% CAGR until 2027. Rising e-commerce penetration, smart city development, the creation of start-ups, and the increasing usage of IoT is driving the growth of the tech sector.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF (XLK) 19.6% returns over the past three months.
Let us look deeper into the fundamentals of the featured stocks.
Science Applications International Corporation (SAIC)
SAIC provides technical, engineering, and enterprise information technology services. The company serves the U.S. military and various intelligence community agencies, as well as U.S. federal civilian agencies.
On June 7, 2023, SAIC has announced the availability of Trust ResilienceTM, a comprehensive strategy to assisting government agencies in adopting the Zero Trust architecture that is mandated.
Shawn Kingsberry, vice president, Cyber Solutions at SAIC, said, “Trust Resilience builds security into IT modernization, delivering protection and compliance of mission-critical resources no matter where organizations are on their technology modernization journey. It also delivers well-defined metrics while aligning to all major federal government cybersecurity executive orders and the White House 2023 National Cybersecurity Strategy.”
SAIC’s forward EV/Sales multiple of 1.10 is 34.8% lower than the industry average of 1.68. Its forward Price/Sales multiple of 0.81 is 39.4% lower than the industry average of 1.33.
SAIC’s trailing-12-month asset turnover ratio of 1.33% is 65.4% higher than the industry average of 0.80%. Its trailing-12-month ROCE of 19.51% is 39.9% higher than the industry average of 13.94%.
For the first quarter that ended May 5, 2023, SAIC’s revenues increased marginally year-over-year to $2.03 billion. Its adjusted operating earnings increased 13.4% from the year-ago value to $152 million. Also, its net income and adjusted EPS came in at $98 million and $2.14, up 32.4% and 13.8% year-over-year, respectively.
The consensus revenue estimate of $7.24 billion for the year ending January 2025 represents a marginally increase year-over-year. Its EPS is expected to grow at 7.3% year-over-year to $7.67 for the same period. It surpassed the EPS estimates in all four trailing quarters.
SAIC’s shares have gained 26.7% over the past year to close the last trading session at $108.39.
SAIC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SAIC has a B for Value. Within the Technology – Services industry, it is ranked #5 out of 81 stocks. Click here for the additional POWR Ratings for Stability, Growth, Momentum, Sentiment, and Quality for SAIC.
LiveRamp Holdings, Inc. (RAMP)
RAMP is a global technology company that provides an enterprise platform for data collaboration. It enables secure and privacy-conscious sharing of first-party consumer data between companies and their business partners. RAMP’s solutions encompass data collaboration, activation, measurement and analytics, identity, and data marketplace.
RAMP’s forward EV/Sales multiple of 2.08 is 30.2% lower than the industry average of 2.98. Its forward Price/Book multiple of 1.92 is 53.8% lower than the industry average of 4.16.
RAMP’s trailing-12-month gross profit margin of 71.49% is 45.2% higher than the industry average of 49.24%. Its trailing-12-month levered FCF margin of 11.93% is 70.1% higher than the industry average of 7.01%.
RAMP’s revenues increased 4.9% year-over-year to $148.63 million for the fiscal fourth quarter that ended March 31, 2023. The company’s adjusted EBITDA increased 277.3% from the prior year’s period to $15.14 million.
Furthermore, the company’s non-GAAP net earnings from continuing operations and EPS came in at $21.13 million and $0.32, compared to a loss and loss per share of $635 thousand and $0.01, respectively.
Analysts expect RAMP’s revenue to increase 3.1% year-over-year to $615.18 million for the year ending March 2024. Its EPS is expected to grow at 29.3% year-over-year to $1.11 for the same period. It surpassed the EPS estimates in all four trailing quarters. The stock has gained 37.1% over the past nine months to close the last trading session at $26.44.
RAMP’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #8 in the same industry. It has an A grade for Sentiment and a B for Value and Quality. To see additional RAMP’s ratings for Stability, Momentum, and Growth, click 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 its acquisition of Continual Ltd’s technology, intellectual property, and customer agreements.
Continual’s mobility experience analytics will be added to the RDCM ACE portfolio for location and mobility analytics, further strengthening RDCM’s 5G analytics to ensure users have the best customer experiences no matter where they are.
RDCM’s forward EV/Sales multiple of 1.19 is 59.9% lower than the industry average of 2.98. Its forward Price/Sales multiple of 2.68 is 5.8% lower than the industry average of 2.84.
RDCM’s trailing-12-month gross profit margin of 72.13% is 46.5% higher than the industry average of 49.24%. Its trailing-12-month levered FCF margin of 18.74% is 167.3% higher than the industry average of 7.01%.
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.
Street expects RDCM’s revenue to increase 11.1% year-over-year to $51.15 million for the year ending December 2023. RDCM’s shares have gained 2.3% intraday to close the last trading session at $9.34.
RDCM has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Sentiment and a B grade for Stability, Quality, and Growth. It is ranked #6 in the same industry.
Beyond what is stated above, we’ve also rated RDCM for Value and Momentum. Get all RDCM ratings here.
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SAIC shares were trading at $108.31 per share on Wednesday morning, down $0.08 (-0.07%). Year-to-date, SAIC has declined -1.69%, versus a 14.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
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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