Despite the current macroeconomic challenges, the tech services industry is experiencing solid growth and profitability due to increasing global demand fueled by widespread digital transformation and the growing adoption of emerging technologies.
Considering these factors, it could be wise to buy fundamentally strong tech stocks TravelSky Technology Limited (TSYHY), Box, Inc. (BOX), and GigaCloud Technology Inc. (GCT), which are trading under $30.
Before delving deeper into their fundamentals, let’s discuss why the tech services industry is well-positioned for growth.
Companies are increasingly investing in cutting-edge technologies such as artificial intelligence (AI), Internet of Things (IoT), and blockchain to enhance productivity, boosting the prospects of the tech services sector. The tech industry is constantly evolving with new trends and advancements, leading to rapid growth.
Gartner predicts that IT spending for this year will grow by 4.3% year-over-year, reaching $4.70 trillion. Furthermore, spending on IT services is expected to rise by 8.8% year-over-year to reach $1.42 trillion. In addition, the infrastructure-as-a-service market is expected to achieve a growth rate of over 30% in 2023.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Technology - Services industry picks, beginning with the third choice.
Stock #3: TravelSky Technology Limited (TSYHY)
Based in Beijing, the People's Republic of China, TSYHY and its subsidiaries, provide information technology solutions for the aviation and travel industry in the People's Republic of China. It primarily offers aviation information technology (AIT), distribution information technology, accounting, settlement, and clearing services.
In terms of the trailing-12-month EBITDA margin, TSYHY’s 29.54% is 170.3% higher than the 10.93% industry average. Its 13.21% trailing-12-month levered FCF margin is 159.4% higher than the 5.09% industry average. Likewise, the stock’s 22.16% trailing-12-month net income margin is 404.1% higher than the 4.40% industry average.
For the six months that ended June 30, 2023, TSYHY’s revenues increased 45.6% year-over-year to RMB3.31 billion ($0.45 billion). Its net profit attributable to shareholders of TSYHY 171.0% year-over-year to RMB1.20 billion ($0.16 billion). The company’s operating profit increased 220.1% year-over-year to RMB1.34 billion ($0.18 billion). Additionally, its EPS increased 173.3% year-over-year to RMB0.41.
Analysts expect TSYHY’s revenues for the fiscal year ending December 31, 2023, to increase 42.8% year-over-year to $1.09 billion. Over the past year, the stock has gained 16% to close the last trading session at $19.01.
TSYHY’s strong fundamentals are reflected in its POWR Ratings. It 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.
It has an A grade for Quality and a B for Growth, Stability, and Sentiment. Within the Technology - Services industry, it is ranked #9 out of 77 stocks. To see TSYHY’s Value, and Momentum ratings, click here.
Stock #2: 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. The company's Software-as-a-Service platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection.
On September 6, 2023, BOX announced it is selected by Arriva, a British Multinational Public Transport Company, as its secure, integrated platform for cloud content management. Arriva uses BOX to centralize CCTV footage, making it easier to search and share evidence with public authorities. BOX enables them securely manage sensitive information, efficiently share data, and meet compliance requirements.
Sebastien Marotte, President, EMEA at BOX said, "We are thrilled that Box helps Arriva to better partner and securely share sensitive information with public authorities such as The Metropolitan Police. We look forward to our continued partnership as Arriva expands its use of the Box Content Cloud for wider use across its workforce and corporate functions."
On July 27, 2023, BOX announced a new plugin for Microsoft 365 Copilot, enhancing the usefulness of BOX files within organizations. They've also updated their integrations with Microsoft 365, including features for improved collaboration within Teams and Office products. This integration will simplify tasks like summarizing documents and enhancing conversations in Teams.
Diego Dugatkin, Chief Product Officer at BOX, said, “Integrating with Microsoft 365 Copilot is a natural extension of our AI strategy, and our existing collaboration will allow joint customers to use Box and Microsoft 365 Copilot together seamlessly.”
In terms of the trailing-12-month gross profit margin, BOX’s 75.08% is 54.3% higher than the 48.66% industry average. Its 30.52% trailing-12-month levered FCF margin is 323.6% higher than the 7.20% industry average. Likewise, the stock’s 4.86% trailing-12-month net income margin is 139.9% higher than the 7.20% industry average.
BOX’s revenues for the first quarter ended April 30, 2023 increased 5.6% year-over-year to $251.89 million. Its gross profit increased 7.9% year-over-year to $190.25 million. The company’s non-GAAP operating income increased 16.7% year-over-year to $57.36 million.
Additionally, its non-GAAP attributable net income increased 33.7% year-over-year to $47.52 million. Its net income per share increased 39.1% year-over-year to $0.32. Also, the company’s adjusted free cash flow came in at $108.25 million, representing an increase of 19.1% year-over-year.
For the quarter ending October 31, 2023, BOX’s EPS and revenue are expected to increase 22.4% and 4.9% year-over-year to $0.38 and $262.25 million, respectively. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past six months the stock has declined marginally to close the last trading session at $25.30.
It’s no surprise that BOX has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has an A grade for Growth and Quality and a B for Value. It is ranked #7 in the Technology - Services industry. In total, we rate BOX on eight different levels. Beyond what we stated above, we also have given BOX grades for Momentum, Stability, and Sentiment. Get all the BOX ratings here.
Stock #1: GigaCloud Technology Inc. (GCT)
GCT provides end-to-end B2B ecommerce solutions for large parcel merchandise. Its marketplace connects manufacturers primarily in Asia with resellers in the United States, Asia, and Europe to execute cross-border transactions across furniture, home appliance, fitness equipment, and other large parcel categories.
On September 12, 2023, GCT signed an agreement to acquire most of the assets of Noble House Home Furnishings, LLC for $85 million in connection with Noble House's Chapter 11 bankruptcy proceedings. Noble House is a prominent distributor and retailer of indoor and outdoor home furnishings. The agreement is subject to customary closing conditions and potential higher offers during the auction process.
In terms of the trailing-12-month EBIT margin, GCT’s 11.33% is 55.7% higher than the 7.28% industry average. Its 8.88% trailing-12-month net income margin is 102% higher than the 4.40% industry average. Likewise, the stock’s 15.91% trailing-12-month levered FCF margin is 212.2% higher than the 5.09% industry average.
GCT’s total revenues for the second quarter ended June 30, 2023, increased 23.5% year-over-year to $153.10 million. The company’s adjusted EBITDA increased 219.3% year-over-year to $24.90 million. In addition, its net income increased 201.5% year-over-year to $18.40 million.
Street expects GCT’s EPS for the quarter ending September 30, 2023, to increase significantly year-over-year to $0.36. Its revenue for the same quarter is expected to increase 27.8% year-over-year to $163.53 million. Over the past six months, the stock has gained 133.9% to close the last trading session at $11.93.
GCT’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and Quality and a B for Growth and Value. It is ranked #3 in the same industry. Click here to see GCT’s Momentum and Stability ratings.
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TSYHY shares were trading at $19.01 per share on Friday morning, up $0.24 (+1.25%). Year-to-date, TSYHY has declined -9.41%, versus a 17.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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