Growing usage of cloud technologies and increased demand for innovative solutions in various sectors are expected to help the tech industry grow steadily.
Given the favorable industry trends, quality tech stocks ON24, Inc. (ONTF), Teradata Corporation (TDC), and Dropbox, Inc. (DBX) might generate significant returns in the near term.
The increasing focus of enterprises on digital transformation for enhancing efficiency and lowering operating costs is leading to a steady demand for tech solutions. Growing usage of cloud technologies, use of business intelligence for forecasting and optimizing operations, and integration of AI are the key factors making the prospects bright for the tech industry.
The U.S. IT Services market is expected to reach $592.43 billion by 2028, growing at a CAGR of 6.5%.
According to Gartner, global IT spending will reach $5.10 trillion in 2024, increasing 8% year-over-year. In addition, the U.S. tech market accounts for 35% of the world market and is expected to grow 5.4% in 2023.
Furthermore, the global digital transformation market is projected to reach $8.92 trillion by 2030, growing at a CAGR of 21.6%.
With these favorable trends in mind, let's delve into the fundamentals of the three Technology - Services stock picks, beginning with the third choice.
Stock #3: ON24, Inc. (ONTF)
ONTF provides a cloud-based digital engagement platform enabling businesses to convert customer engagement into revenue through interactive webinars, virtual events, and multimedia content experiences worldwide.
ONTF’s trailing-12-month gross profit margin of 72.51% is 47.6% higher than the industry average of 49.14%, while its trailing-12-month levered FCF margin of 9.90% is 21.9% higher than the industry average of 8.12%.
For the fiscal third quarter ended September 30, 2023, ONTF’s total revenue came in at $39.22 million. The company’s non-GAAP gross profit came in at $29.84 million. In addition, its adjusted EBITDA came in at $51 million. Its non-GAAP net income came in at $1.50 billion.
Analysts expect ONTF’s EPS for the quarter ending December 31, 2023, to come in at $0.60. Its revenue is expected to be $37.25 million for the same quarter. Also, the company topped the consensus revenue estimates in each of the four trailing quarters, which is impressive.
The stock has gained 9.5% over the past month to close the last trading session at $6.78.
ONTF’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.
The stock has a B grade in Value, Sentiment, and Quality. It is ranked #14 out of 72 stocks in the Technology - Services industry.
Click here to see the other ratings of ONTF (Growth, Momentum, and Stability).
Stock #2: Dropbox, Inc. (DBX)
DBX provides a content collaboration platform worldwide. The company’s platform allows individuals, families, teams, and organizations to collaborate and sign up for free through its website or app, as well as an upgrade to a paid subscription plan for premium features.
On October 10, 2023, DBX announced enhancements to its latest category of AI-powered products, Dropbox AI and Dropbox Dash, a redesigned web experience, an all-in-one video tool called Dropbox Studio, and three new workflow plans, along with the first investment partners of Dropbox Ventures.
DBX’s trailing-12-month gross profit margin of 80.84% is 64.5% higher than the industry average of 49.14%. Its trailing-12-month asset turnover ratio of 0.86x is 38.9% higher than the industry average of 0.62x.
DBX’s revenues increased 7.1% year-over-year to $633 million in the fiscal third quarter that ended September 30, 2023. The company’s net income increased 37.1% from the year-ago quarter to $114.10 million. Also, net income per share increased 43.5% year-over-year to $0.33.
The consensus revenue estimate of $631.08 million for the fiscal fourth quarter ending December 2023 represents a 5.4% increase year-over-year. Its EPS is expected to grow 19.3% year-over-year to $0.48 for the same quarter. Also, the company topped the consensus revenue and EPS estimates in each of the four trailing quarters.
DBX’s shares have gained 18.2% year-to-date to close the last trading session at $26.46.
DBX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The stock has an A grade for Quality and a B in Value. Within the same industry, it is ranked #9.
Beyond what is stated above, we’ve also rated DBX for Growth, Momentum, Sentiment, and Stability. Get all DBX ratings here.
Stock #1: Teradata Corporation (TDC)
TDC provides a connected multi-cloud data platform for enterprise analytics. The company offers Teradata Vantage, a data platform that allows companies to leverage their data across an enterprise and connects various data sources to drive ecosystem simplification and support customers on their journey to the cloud through an integrated migration.
On November 15, 2023, TDC announced its first serverless AI/ML cloud engine, Teradata AI Unlimited. The new offering, unveiled at Microsoft Ignite, is natively integrated into Microsoft Fabric and OneLake, Fabric’s unified, multi-cloud data lake.
TDC’s trailing-12-month gross profit of 60.34% is 22.8% higher than the industry average of 49.14%. Its trailing-12-month levered FCF margin of 18.01% is 121.9% higher than the industry average of 8.12%.
TDC’s total revenue increased 5% year-over-year to $438 million for the fiscal second quarter that ended June 30, 2023. Its non-GAAP net income and non-GAAP EPS increased 34.4% and 35.5% year-over-year to $43 million and $0.42, respectively.
Street expects TDC’s revenue to increase 1.4% year-over-year to $458.17 million for the fiscal fourth quarter ending December 2023. Its EPS is expected to grow 46.2% year-over-year to $0.51 for the same quarter. Also, the company topped the consensus revenue estimates in each of the four trailing quarters.
Over the past year, the stock has surged 40.9% to close the last trading session at $46.62.
It’s no surprise that TDC has an overall rating of A, which equates to Strong Buy in our proprietary rating system. It has an A grade for Quality and a B in Growth and Value. Within the Technology - Services industry, it is ranked #2.
In addition to the POWR Ratings stated above, one can access TDC's Momentum, Sentiment, and Stability ratings here.
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TDC shares were unchanged in premarket trading Friday. Year-to-date, TDC has gained 38.50%, versus a 19.04% 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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