The tech industry is booming due to significant investments in digital transformation, increasing demand for seamless connectivity, and rising GenZ’s smartphone habits. Thus, investors could consider buying fundamentally sound tech Telefonaktiebolaget LM Ericsson (publ) (ERIC), Pure Storage, Inc. (PSTG), and Proto Labs, Inc. (PRLB) this week.
Companies spanning various sectors are increasingly investing in critical domains like cloud computing, cybersecurity, artificial intelligence (AI), the Internet of Things (IoT), machine learning, and collaboration tools. According to the latest forecast by Gartner, global IT spending is expected to increase 8% year-over-year to $5.06 trillion in 2024.
According to CTA research, Gen Z reports they are more likely to splurge on tech than their older cohorts, specifically interested in purchasing a smartphone in the next year, despite their high personal ownership of smartphones. The study finds that 86% of Gen Z agree that technology is essential to their lives, notably higher than older generational cohorts.
Besides, the 3D printing market has witnessed a significant degree of innovation, marked by continuous advancements in the 3D printing materials market, printing technologies, and the expansion of applications across diverse industries. Therefore, the global 3D printing market is expected to register a CAGR of 23.5% from 2024 to 2030.
Furthermore, investors' trust in tech stocks is evident in the strong performance of the Vanguard Information Tech ETF (VGT), which has returned a staggering 34.5% over the past year.
Given these favorable industry trends, let us delve deeper into the fundamentals of the top tech stocks:
Telefonaktiebolaget LM Ericsson (publ) (ERIC)
Headquartered in Stockholm, Sweden, ERIC provides mobile connectivity solutions for telecom operators and enterprise customers in North America, Europe, Latin America, the Middle East, Africa, North East Asia, South East Asia, Oceania, and India. The company operates in four segments: Networks; Cloud Software and Services; Enterprise; and Other.
On May 14, 2024, Vonage, a division of ERIC and a prominent player in cloud communications aiding businesses in advancing their digital journey, expanded its Vonage Premier for Service Cloud Voice offering.
This expansion now includes integration with Salesforce Einstein Conversation Insights. These AI-driven insights and analytics will enable brands to elevate both agent and customer experiences through intelligent, global calling capabilities - all within Salesforce Service Cloud Voice.
Also, on April 19, Vonage partnered with Singtel to help enterprises and telcos innovate and scale their services and solutions through Singtel’s industry-leading one-stop orchestration platform, Paragon.
By integrating Paragon’s advanced telco and edge APIs with Vonage's API platform, enterprises, telcos, and developers will have access to a global ecosystem of rich communications, network, and edge APIs that will seamlessly provide optimized, secure, and engaging customer experiences, while accelerating digital transformation.
ERIC’s forward EV/Sales of 0.85x is 42.2% lower than the industry average of 2.87x. Its forward Price/Sales multiple of 0.82 is 71.9% lower than the industry average of 2.91. Likewise, ERIC’s EV/EBITDA of 6.77x is 55.4% lower than the industry average of 15.19x.
For the first quarter that ended March 31, 2024, ERIC reported net sales and gross income of SEK 53.30 billion ($4.99 billion) and SEK 22.70 billion ($2.12 billion), respectively. Its EBIT increased 36.7% year-over-year to SEK 4.10 billion ($383.61 million). Its net income grew 62.5% from the previous year’s quarter to SEK 2.60 billion ($243.27 million).
Street expects ERIC to post revenue of $5.47 billion for the second quarter ending June 2024. The company’s EPS is expected to increase marginally year-over-year to $0.07 for the same quarter. Moreover, it surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
Shares of ERIC have gained 13.5% over the past month to close the last trading session at $5.79.
ERIC’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ERIC has a B grade for Value and Quality. It is ranked #5 among 45 stocks in the Technology - Communication/Networking industry.
Click here to access the additional ERIC ratings (Momentum, Growth, Stability, and Sentiment).
Pure Storage, Inc. (PSTG)
PSTG engages in the provision of data storage and management technologies, products, and services. The company’s Purity software is shared across its products, providing enterprise-class data services, such as data reduction, data protection, encryption, and storage protocols, including block, file, and object.
On May 20, 2024, PSTG announced that New Mexico State University (NMSU), New Mexico's land-grant institution and a comprehensive research university, deployed its data storage platform to drive exceptional learning and teaching experiences for 25,000+ student, faculty, and staff member population.
Adopting PSTG's comprehensive portfolio, NMSU will gain a powerful, cost-effective, and secure enterprise storage platform that underpins exceptional services for every student, faculty, and staff member.
On March 18, 2024, PSTG unveiled fresh validated reference architectures tailored for executing generative AI applications. This includes a newly introduced NVIDIA OVX-ready validated reference architecture.
Positioned as a leader in AI, PSTG, in partnership with NVIDIA, is equipping clients worldwide with a proven framework to manage the high-performance data and computational needs essential for achieving successful AI deployments.
PSTG’s trailing-12-month gross profit margin of 71.40% is 45.4% higher than the industry average of 49.11%. Also, the stock’s trailing-12-month levered FCF margin of 14.76% is 51.5% higher than the industry average of 9.75%. Its trailing-12-month ROCE margin of 5.55% is 43.6% higher than the industry average of 3.86%.
PSTG’s revenue from subscription services for the fourth quarter ended February 28, 2024, increased 24.2% year-over-year to $328.91 million. The company’s non-GAAP gross profit increased 1.4% year-over-year to $581.99 million. The company reported a non-GAAP net income of $166.04 million, or $0.50 per share, respectively.
Analysts expect PSTG’s revenue for the first quarter (ended April 2024) to increase 15.5% year-over-year to $680.91 million. The consensus EPS estimate of $0.21 for the same quarter indicates a rise of 168.5% year-over-year. Also, PSTG has surpassed consensus EPS and revenue estimates in each of the trailing four quarters.
PSTG’s stock has soared 147.2% over the past year to close the last trading session at $59.91.
PSTG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth and Momentum. PSTG is ranked first in the A-rated Technology - Storage industry.
Beyond what is stated above, we’ve also rated PSTG for Value, Stability, and Sentiment. Get all PSTG ratings here.
Proto Labs, Inc. (PRLB)
PRLB is the go-to name in e-commerce digital manufacturing. The company specializes in custom prototypes and on-demand production parts worldwide, and its innovative services encompass injection molding, CNC machining, 3D printing, and sheet metal fabrication.
On May 1, PRLB showcased its impactful collaboration with BioDapt, a pioneer in designing, manufacturing, and distributing high-performance lower limb prosthetic equipment for action sports and similar demanding activities. Through its hybrid digital manufacturing model, combining digital factories with a global network of partners, PRLB positively influences the world.
PRLB’s trailing-12-month gross profit margin of 44.61% is 44.5% higher than the industry average of 30.88%. Likewise, the stock’s trailing-12-month levered FCF margin of 9.14% is 39.6% higher than the industry average of 6.55%.
During the first quarter that ended March 31, 2024, PRLB’s total revenue rose 1.6% year-over-year to $127.89 million. Its non-GAAP gross profit increased 6.7% over the prior-year quarter to $58.27 million. The company’s adjusted EBITDA came in at $20.23 million, up 13.9% year-over-year.
Additionally, the company’s non-GAAP net income and net income per share grew 32.3% and 33.3% year-over-year to $10.41 million and $0.40, respectively.
For the second quarter of 2024, the company anticipates revenue from $122 million to $130 million. Additionally, it projects non-GAAP net income per share to fall between $0.30 and $0.38.
Street expects PRLB’s EPS and revenue for the second quarter (ending June 2024) to expand 4.6% and 3.3% year-over-year to $0.35 and $126.31 million, respectively. In addition, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of PRLB have surged 13.2% over the past nine months to close the last trading session at $31.90.
PRLB’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
PRLB has an A grade for Quality and a B for Growth and Value. It is ranked first out of 5 stocks in the Technology - 3D Printing industry.
In addition to the POWR Ratings highlighted above, one can access PRLB’s ratings for Momentum, Stability, and Sentiment here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
ERIC shares rose $0.09 (+1.55%) in premarket trading Wednesday. Year-to-date, ERIC has declined -6.66%, versus a 12.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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