The sell-off in tech equities since last year is the aftermath of the Fed's hawkish monetary policy approach. Regardless, the IT sector is well-positioned to offer reliable returns given the track record of scorching returns and potential for long-term development.
As a result, the time looks ripe to look at quality tech stocks, Aviat Networks (AVNW), Silicom Ltd. (SILC), and PCTEL, Inc. (PCTI). Let’s examine their fundamentals to see if they are worth buying this month.
Tech stocks are back in the game on increasing hopes that the economy is on the brink of a turnaround after a tumultuous year. The tech-heavy Nasdaq composite is up 18.9% year-to-date.
With the continued decline in inflation over the past few months, the Fed’s interest rate hikes have slowed, which bodes well for the companies in this space. There are also indications that the Federal Reserve will soon end its rate increase policy.
According to Gartner Inc. (IT), global IT spending is expected to reach $4.6 trillion in 2023, reflecting an increase of 5.5% from 2022. The worldwide rise in IT spending, combined with the broad adoption of software-as-a-service and expanded cloud-based products, reflects the robust demand for IT services.
Companies have begun to devote resources to improving their advanced security products as this trend gains traction in the industry. The overall demand for tech products and services is still strong. The global information technology market is expected to reach about $12 trillion in 2027, growing at a CAGR of 7.9%.
The increasing demand for cloud computing services to streamline business operations is expected to drive the demand for IT services during the forecast period. In addition, the global cloud computing market is estimated to be worth $2.32 trillion in 2032, growing at a CAGR of 16%.
With this being said, let’s dive into these stocks that are thriving in the stock market this month.
Aviat Networks, Inc. (AVNW)
AVNW is a supplier of microwave networking solutions and works to provide dependable products, services, and support to its customers. It offers outdoor, indoor, and split-mount radios; microwave routers and switches; microwave trunking; element management products; and software products.
On March 21, AVNW announced enhanced Frequency Assurance Software (FAS), enabling operators to protect their 3rd-party (non-Aviat) critical microwave links from 6GHz interference. The company should greatly benefit from this move while building trust between customers.
Pete Smith, CEO of AVNW, said, “We are excited to expand the application of FAS to include microwave links from other vendors. Now network operators who may not be Aviat radio customers can take advantage of this powerful software to achieve the highest levels of network performance and uptime with less reliance on expert personnel while also reducing operational costs."
AVNW’s total revenue increased 16.5% year-over-year to $90.68 million for the fiscal second quarter that ended on December 30, 2022. Its non-GAAP operating income and non-GAAP net income increased 26.2% and 31.1% year-over-year to $11.37 million and $11.10 million, respectively.
Also, its non-GAAP net income per share grew 32.4% from the prior-year quarter to $ 0.94, while its adjusted EBITDA came in at $12.91 million, up 27.4% year-over-year.
In terms of trailing-12-month ROTA, AVNW’s 3.97% is 500.2% higher than the 0.66% industry average. Likewise, its trailing-12-month ROCE of 6.91% is 252.3% higher than the industry average of 1.96%.
Analysts expect AVNW’s EPS to increase 14% year-over-year to $0.76 in the fiscal third quarter (ended March 2023). Its revenue for the to-be-reported quarter is expected to increase 14.1% year-over-year to $84.99 million. It surpassed the EPS estimates in three of the trailing four quarters, which is impressive.
Shares of AVNW have gained 31.9% over the past nine months and 9.7% year-to-date to close the last trading session at $34.21.
AVNW’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum. In the 50-stock B-rated Technology - Communication/Networking industry, it is ranked #12. To see additional POWR Ratings for AVNW for Growth, Value, Stability, Sentiment, and Quality, click here.
Silicom Ltd. (SILC)
Headquartered in Kfar Sava, Israel, SILC is a leading provider of high-performance networking and data infrastructure solutions for a range of servers, server-based systems, and communications devices in the United States, North America, Israel, Europe, and the Asia Pacific.
On February 27, SILC announced that one of its pioneering Edge Networking devices had earned another Design Win. A first deployment order had already been made by the customer, a well-known Secure Access Service Edge (SASE) vendor, which shall be delivered in the first half of 2023.
Commenting on this, SILC’s CEO, Liron Eizenman, said, "This strategic win, added to our growing roster of SASE and other Edge related design wins, clearly demonstrates that our Edge Networking momentum is building far beyond the SD-WAN space."
In the same month, SILC declared that a top supplier of business voice solutions had awarded it its first Design Win. The client would integrate a customized edge computing board into one of its cutting-edge uCPE platforms to bring significant new capabilities, including support for virtual network services.
This reflects the growing demand for SILC’s offerings and solutions over its peers and could be a strong growth driver for upcoming years.
For the fiscal fourth quarter that ended December 31, 2022, SILC’s sales increased 24.5% year-over-year to $45.19 million. Its gross profit rose 19.5% from the year-ago value to $14.99 million, while its non-GAAP operating income grew 54.9% from the prior-year quarter to $7.94 million. Also, its non-GAAP net income came in at $6.65 million and $0.98 per share, representing a 47.9% and 50.8% year-over-year increase, respectively.
In terms of trailing-12-month SILC’s ROTA of 8.47% is significantly higher than the 0.66% industry average. Likewise, its trailing-12-month ROCE of 10.84% is 452.9% higher than the industry average of 1.96%. Also, its net income margin of 12.16% is 349.8% higher than the industry average of 2.70%.
Street expects SILC’s revenue to increase 15.4% year-over-year to $37.01 million for the fiscal first quarter (ended March 31, 2023). Its EPS is expected to increase 36.4% year-over-year to $0.60 in the same quarter. Moreover, it surpassed the EPS and revenue estimates in each of the trailing four quarters, which is promising.
Over the past nine months, the stock has gained 5.9% to close the last trading session at $36.77.
SILC’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.
It has an A grade for Sentiment and a B for Growth and Momentum. In the same industry, it is ranked #13 out of 50 stocks. Click here to see the other ratings of SILC for Value, Stability, and Quality.
PCTEL, Inc. (PCTI)
PCTI is a global provider of wireless technology solutions, including purpose-built Industrial IoT devices, antenna systems, and test and measurement products. It designs and manufactures precision antennas and industrial IoT devices that are deployed in small cells, enterprise Wi-Fi access points, fleet management, transit systems, and equipment and devices for the industrial IoT.
On March 27, the company introduced its latest innovative testing solution for P25 public safety radio networks with the industry’s first automated uplink drive and walk testing. This solution is designed to assist radio network managers in delivering more reliable critical communications coverage for public safety and emergency response teams, including police, fire, and EMS.
On February 7, with an aim to support IIoT and improved rail communications, PCTI recently unveiled the VerStack antenna platform, consisting of the most advanced 5G and GNSS vertically stacked antennas in the market. Given the high-performance connectivity and reliability, this solution will likely witness strong demand.
During the fourth quarter that ended on December 31, 2022, PCTI’s revenues amounted to $25.92 million, while its gross profit increased 9.2% year-over-year to $13.04 million. The company’s non-GAAP operating income grew 37.2% from the year-ago value to $1.19 million, while its adjusted net income came in at $3 million, representing a 43.9% year-over-year improvement. Also, its non-GAAP earnings per share stood at $0.16, up 33.3% year-over-year.
In terms of trailing-12-month ROTA and ROCE, PCTI’s 3.19% and 4.22% are 382.7% and 115.3% higher than the industry averages of 0.66% and 1.96%, respectively. Also, its trailing-12-month net income margin of 2.89% is 6.8% higher than the industry average of 2.70%.
For the fiscal first quarter (ended March 31, 2023), PCTI’s EPS is expected to increase 150% year-over-year to $0.05, while its revenue is expected to be $22.50 million in the same period. The company surpassed the EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 5% to close the last trading session at $4.44.
PCTI’s POWR Ratings reflect its promising outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and Sentiment and B for Growth, Momentum, and Quality. Within the same B-rated industry, it is ranked first. Click here to see PCTI’s rating for Stability.
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AVNW shares were trading at $33.72 per share on Friday afternoon, down $0.49 (-1.43%). Year-to-date, AVNW has gained 8.11%, versus a 8.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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