Tech stocks have been under pressure since last year due to the Fed’s aggressive rate hikes. However, the Federal Reserve has indicated that a pause in interest rates could be on the cards if inflation continued to ease. If the Federal Reserve stops raising rates, it could benefit technology stocks.
To that end, it could be wise to buy fundamentally strong tech stocks such as Nomura Research Institute (NRILY), Cellebrite DI Ltd. (CLBT), and The Hackett Group (HCKT). These stocks are Buy-rated in our proprietary rating system, POWR Ratings.
Before delving deeper into the stock’s fundamentals, let’s discuss why the tech services industry will likely perform well in the upcoming months.
Inflation continued to ease as the consumer price index (CPI) in May rose 4% year-over-year, coming in lower than the estimates. The cooling inflation data could influence the Fed not to raise interest rates this month. According to CMEGroup’s Fedwatch tool, fed fund futures indicate traders have priced in a nearly 80% chance the Fed will hold interest rates in the 5% and 5.25% range.
A pause in interest rate hikes could be beneficial for tech companies. Moreover, the increasing adoption of advanced technologies like Virtual reality (VR), augmented reality (AR), artificial intelligence (AI), Internet of Things (IoT), and mixed reality (MR) is expected to boost the demand for tech services.
According to the IDC, the worldwide IT and business services revenue is expected to grow 5.7% year-over-year to $1.2 trillion in 2023.
Now, let’s take a closer look at the fundamentals of these stocks.
Nomura Research Institute, Ltd. (NRILY)
Headquartered in Tokyo, Japan, NRILY offers consulting, financial, and industrial IT solutions and IT platform services. Its segments include Consulting, Financial IT Solutions, Industrial IT Solutions, and IT Infrastructure Services. The company provides management and system consulting, system development, and operational solutions for various sectors, such as finance, manufacturing, and public services.
In terms of the trailing-12-month net income margin, NRILY’s 11.02% is 458.7% higher than the 1.97% industry average. Likewise, its 15.77% trailing-12-month EBIT margin is 266% higher than the industry average of 4.31%. Furthermore, its 0.85x trailing-12-month asset turnover ratio is 40% higher than the industry average of 0.61x.
For the fiscal year ended March 31, 2023, NRILY’s operating profit increased 5.3% year-over-year to ¥111.83 billion ($801.72 million). Its revenue rose 13.2% year-over-year to ¥692.17 billion ($4.96 billion). The company’s cash flows from operating activities increased 21.2% over the prior-year period to ¥118.90 billion ($852.41 million).
Its gross profit increased 11% year-over-year to ¥239.83 billion ($1.72 billion). Also, EPS came in at ¥128.88, representing an increase of 7.1% year-over-year.
Street expects NRILY’s revenue for the quarter ending September 30, 2023, to increase 8.4% year-over-year to $1.27 billion. Over the past three months, the stock has gained 22.5% to close the last trading session at $27.05.
NRILY’s POWR Ratings reflect strong prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 9 stocks in the A-rated Outsourcing - Tech Services industry. It has an A grade for Stability. Click here to see ADRNY’s rating for Growth, Value, Momentum, Sentiment, and Quality.
Cellebrite DI Ltd. (CLBT)
Headquartered in Petah Tikva, Israel, CLBT offers legally sanctioned investigation solutions globally. Their DI suite enables collection, analysis, and management of digital data in various cases, including child exploitation, anti-terror, and corporate security. Their Universal Forensic Extraction Device tackles challenges like encryption barriers and deleted content.
In terms of the trailing-12-month net income margin, CLBT’s 8.76% is 344.2% higher than the 1.97% industry average. Likewise, its 81.82% trailing-12-month gross profit margin is 66.2% higher than the industry average of 49.24%. Furthermore, the stock’s 0.77x trailing-12-month asset turnover ratio is 26.2% higher than the industry average of 0.61x.
CLBT’s non-GAAP net income for the first quarter ended March 31, 2023, increased 385.8% year-over-year to $6.90 million. Its revenue rose 14.2% over the prior-year quarter to $71.23 million. The company’s non-GAAP gross profit increased 14.7% year-over-year to $59.23 million in the year-ago period.
Its non-GAAP operating income increased 114.6% year-over-year to $5.65 million. In addition, its adjusted EBITDA increased 78.9% year-over-year to $7.30 billion. Also, its non-GAAP EPS came in at $0.03, representing an increase of 200% year-over-year.
Analysts expect CLBT’s revenue for the quarter ending June 30, 2023, to increase 15.8% year-over-year to $72.45 million. Its EPS for fiscal 2023 is expected to increase 51.9% year-over-year to $0.15. Over the past six months, the stock has gained 42.5% to close the last trading session at $6.20.
CLBT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Quality. Within the Technology - Services industry, it is ranked #23 out of 81 stocks. To see the other ratings of CLBT for Growth, Value, Momentum, Stability, and Sentiment, click here.
The Hackett Group, Inc. (HCKT)
HCKT is a global strategic advisory and technology consulting firm. It has three segments: Global Strategy & Business Transformation, Oracle Solutions, and SAP Solutions. The company provides online resources, best practice accelerators, advisory services, research insights, peer interaction, benchmarking services, business transformation practices, and Oracle and SAP solutions for clients’ specific needs.
In terms of the trailing-12-month net income margin, HCKT’s 13.52% is 585.3% higher than the 1.97% industry average. Likewise, its 21.04% trailing-12-month EBITDA margin is 158.4% higher than the industry average of 8.14%. Furthermore, its 1.47x trailing-12-month asset turnover ratio is 142.5% higher than the industry average of 0.61x.
HCKT’s total revenue for the first quarter ended March 31, 2023, came in at $71.23 million. The company’s adjusted net income and EPS came in at $9.96 million and $0.37, respectively.
For the quarter ending September 30, 2023, HCKT’s EPS and revenue are expected to increase 8.1% and 4.4% year-over-year to $0.40 and $75.18 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 13.1% to close the last trading session at $20.63.
HCKT’s positive outlook is 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 Quality. It is ranked first in the Outsourcing - Tech Services industry. Click here to see HCKT’s Growth, Value, Momentum, Stability, and Sentiment ratings.
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NRILY shares were trading at $27.18 per share on Tuesday afternoon, up $0.13 (+0.46%). Year-to-date, NRILY has gained 14.73%, versus a 14.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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