The tech industry is experiencing constant development, and new trends are emerging, positioning the market for robust growth in the coming years. In light of this, I think it could be wise to capitalize on the industry’s tailwinds by investing in quality tech stocks Zoom Video Communications, Inc. (ZM), Logitech International S.A. (LOGI), and Knowles Corporation (KN).
The tech industry is evolving with new trends, constant innovations and disruptions that could reasonably drive its growth. Moreover, firms focusing more on digital with access to advanced technologies for driving growth while decreasing cost, growing usage of cloud technologies, and using business intelligence to earn increased revenues are fueling growth in the IT market.
The United States IT Services market is expected to grow at a CAGR of 6.5% until 2028. As the industry continues to expand and evolve, the demand for IT hardware increases correspondingly. IT is crucial in various sectors, including business, healthcare, education, finance, entertainment, and government. The IT hardware market is expected to grow at a CAGR of 7.9% until 2028.
In addition, manufacturers are heavily investing in the integration of various digital technologies in consumer electronic products and increasingly focusing on providing high-quality experiences to consumers. Also, the miniaturization of electronic products is gaining rapid traction globally.
As a result, the U.S. consumer electronics market is predicted to touch $293.81 billion by 2032, growing at a CAGR of 5.1% until 2032.
Considering these conducive trends, let’s take a look at the fundamentals of the three best tech stocks.
Zoom Video Communications, Inc. (ZM)
ZM is a provider of video communication platforms. The company provides a unified communications and collaboration platform that delivers fundamental changes in how people interact, connecting them through frictionless and secure meetings, phone, chat, content sharing, and more.
On September 5, 2023, ZM announced that Zoom AI Companion (formerly Zoom IQ), the company’s generative AI digital assistant, is included at no additional cost for customers with the paid services in their Zoom user accounts.
ZM’s trailing-12-month levered FCF margin of 36.08% is 338% higher than the industry average of 8.24%. Its trailing-12-month ROCE of 3.56% is 260.3% higher than the industry average of 0.99%.
For the fiscal third quarter ended October 31, 2023, ZM’s revenue rose 3.2% year-over-year to $1.14 billion. Its non-GAAP income from operations increased 154.7% over the prior-year quarter to $461.68 million. The company’s non-GAAP net income increased 24.2% year-over-year to $401.24 million. Its non-GAAP EPS came in at $0.45, representing an increase of 181.3% year-over-year.
Analysts expect ZM’s revenue to rise 1.1% year-over-year to $1.13 billion in the fiscal fourth quarter ending January 2024. Its EPS is expected to be $1.15 for the same quarter. Also, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 13.1% over the past month to close the last trading session at $67.83.
ZM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ZM has a B grade for Growth, Quality, and Value. It ranks #8 out of 75 stocks in the Technology – Services industry.
In addition to the POWR Ratings highlighted above, one can see ZM’s ratings for Momentum, Stability, and Sentiment here.
Logitech International S.A. (LOGI)
Headquartered in Lausanne, Switzerland, LOGI designs, manufactures, and markets products that connect people to working, creating, gaming, and streaming worldwide. The company offers pointing devices, such as wireless mouse; corded and cordless keyboards, living room keyboards, and keyboard-and-mouse combinations; PC webcams; and keyboards for tablets and smartphones, as well as other accessories for mobile devices.
On October 12, 2023, LOGI and leading innovator of gaming technologies and gear, announced the new Streamlabs Desktop Plugin for the Loupedeck. The new plugin provides Streamlabs creators with simple and powerful controls over their live streams, and direct access to the Streamlabs Desktop software using Loupedeck devices.
LOGI’s trailing-12-month EBIT margin of 11.32% is 141.3% higher than the 4.69% industry average. Its trailing-12-month EBITDA margin of 13.59% is 50% higher than the 9.07% industry average.
For the fiscal second quarter ended September 30, 2023, LOGI’s net sales came in at $1.06 billion. Its non-GAAP gross stood at $438.62 million. The company’s non-GAAP net income increased 25.9% over the prior-year quarter to $173.42 million. Also, its non-GAAP net income per share came in at $1.09, representing an increase of 29.8% year-over-year.
Street expects LOGI’s EPS for the third quarter ending December 30, 2023, to increase marginally year-over-year to $1.15. Its revenue for the same quarter is expected to be $1.23 billion.
Over the past year, the stock has gained 44.9% to close the last trading session at $87.70.
LOGI’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
LOGI has an A grade for Quality and a B in Sentiment and Momentum. It ranks #16 in the B-rated Technology - Hardware industry.
Click here to access additional LOGI ratings (Growth, Value, and Stability).
Knowles Corporation (KN)
KN provides micro-acoustic microphones, balanced armature speakers, high-performance capacitors, and Radio Frequency (RF) filtering products, operating through three broad segments: Precision Devices (PD); Medtech & Specialty Audio (MSA); and Consumer MEMS Microphones (CMM).
On September 18, KN announced its acquisition of Cornell Dubilier, a high-quality film, electrolytic, and mica capacitors manufacturer, for $263 million. This move is expected to diversify and expand KN’s product portfolio while accelerating its transformation into an industrial technology company.
On August 30, Knowles Precision Devices, a division of KN, unveiled the MD Series, a range of medical-grade capacitors for implantable designs. The introduction of the products should add to the company’s existing revenue stream.
KN’s trailing-12-month EBIT margin of 7.69% is 69.8% higher than the 4.69% industry average. Its trailing-12-month EBITDA margin of 14.63% is 61.4% higher than the 9.07% industry average.
For the fiscal third quarter that ended September 30, 2023, KN’s revenues stood at $175.1 million, while its non-GAAP gross profit increased 5.2% year-over-year to $77.50 million. Its non-GAAP net earnings came in at $29.30 million, registering an increment of 25.8% from prior-quarter value, while non-GAAP EPS increased 24% sequentially to $0.31.
For the fiscal first quarter ending March 2024, KN’s EPS is expected to increase 300% year-over-year to $0.20. KN’s revenue is expected to grow 35% year-over-year to $194.70 million for the same quarter. Additionally, it topped the EPS estimates in each of the trailing four quarters.
The stock has gained 22.3% over the past month to close its last trading session at $15.87.
It’s no surprise that the stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
KN has a B grade for Sentiment, Quality, and Growth. It has ranked #8 out of 41 stocks in the B-rated Technology - Electronics industry.
Beyond what is stated above, we’ve also rated KN for Momentum, Value, and Stability. Get all KN ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ZM shares were trading at $69.32 per share on Friday morning, up $1.49 (+2.20%). Year-to-date, ZM has gained 2.33%, versus a 20.63% 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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