The tech sector is expanding and poised for significant growth owing to increased spending on cloud, cybersecurity, software, and IT services. The industry’s growth will be driven by continuous innovations in artificial intelligence (AI) and the integration of emerging technologies, promising a bright future for potential investors.
Against this backdrop, investors could consider buying fundamentally robust tech stocks such as Canon Inc. (CAJPY), TTM Technologies, Inc. (TTMI), and Universal Electronics Inc. (UEIC). Before diving deeper into the fundamentals of these stocks, let’s first understand what’s shaping the industry’s prospects.
According to Gartner, worldwide IT spending is expected to total $5.06 trillion this year, rising 8% year-over-year. This is higher than its previous forecast of 6.8% and puts worldwide IT spending on track to surpass $8 trillion before the end of the decade.
An uptick in demand for AI-friendly or IoT-enabled devices such as laptops, tablets, and handhelds are significantly boosting the need for critical electronic components. As consumer spending on technology products and services grows, the demand for advanced electronics will increase. The global electronics market is projected to grow at a CAGR of 6.8% to reach $368.40 billion by 2032.
With the rise of new technologies like 5G, the Internet of Things, edge computing, quantum computing, artificial intelligence, etc., the demand for sophisticated hardware to support their highly complex processing needs is growing. The IT Hardware Market is anticipated to hit $191.03 billion by 2029, growing at a 7.9% CAGR.
Considering these conducive trends, let’s examine the fundamentals of the three featured tech stocks.
Canon Inc. (CAJPY)
Headquartered in Tokyo, Japan, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through the Printing Business Unit, Imaging Business Unit, Medical Business Unit, Industrial Business Unit, and Others segments.
CAJPY’s trailing-12-month asset turnover ratio of 0.80x is 29.3% higher than the industry average of 0.62x. Its trailing-12-month ROTC and ROTA of 6.12% and 4.88% are 151% and 226.9% higher than the industry averages of 2.44% and 1.49%, respectively.
CAJPY’s net sales and gross profit for the fiscal first quarter that ended March 31, 2024, increased 1.8% and 5.4% year-over-year to ¥988.52 billion ($6.39 billion) and ¥478.44 billion ($3.09 billion), respectively.
For the same quarter, its income before income taxes and net income attributable to CAJPY stood at ¥89.22 billion ($576.41 million) and ¥59.95 billion ($387.30 million), up 1.9% and 6.3% from the prior-year quarter, respectively.
Street expects CAJPY’s revenue for the year ending December 31, 2024, to increase 147.1% year-over-year to $27.92 billion. Over the past year, the stock has gained 28.8% to close the last trading session at $28.73.
CAJPY’s robust prospects are reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Momentum and a B for Value, Stability, and Quality. It is ranked #7 out of 37 stocks in the B-rated Technology - Hardware industry. Click here to see the additional POWR Ratings for CAJPY (Growth and Sentiment).
TTM Technologies, Inc. (TTMI)
TTMI manufactures and sells mission systems, radio frequency (RF) components and RF microwave/microelectronic assemblies, and printed circuit boards (PCB) worldwide. The company operates in two segments: PCB and RF&S Components.
TTMI’s trailing-12-month CAPEX / Sales of 7.18% is 212.9% higher than the industry average of 2.29%. Similarly, its trailing-12-month EBITDA margin of 12.19% is 27.3% higher than the industry average of 9.57%.
For the fiscal fourth quarter that ended January 1, 2024, TTMI’s net sales stood at $569.04 million, and its non-GAAP operating income increased 2.5% from the year-ago quarter to $61.04 million. In addition, its adjusted EBITDA stood at $80.87 million.
For the same quarter, its non-GAAP net income increased marginally year-over-year to $42.97 million, while non-GAAP earnings per share stood at $0.41.
Analysts expect TTMI’s revenue and EPS for the quarter ending June 30, 2024, to increase 5.5% and 9.4% year-over-year to $576.43 million and $0.35, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 23.3% over the past six months to close the last trading session at $14.59.
TTMI’s POWR Ratings reflect its positive prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
TTMI has an A grade for Momentum and Sentiment and a B for Growth. Within the Technology - Electronics industry, it is ranked #3 out of 42 stocks. To see the additional POWR Ratings of TTMI for Value, Stability, and Quality, click here.
Universal Electronics Inc. (UEIC)
UEIC designs, develops, manufactures, ships, and supports control and sensor technology solutions in the U.S., the People's Republic of China, the rest of Asia, Europe, Latin America, and internationally.
On January 11, UEIC announced the release of its latest QuickSet solution, expanding content discovery, control, and interaction across millions of devices and households.
The newest release of QuickSet expanded functionality for entertainment and whole-home audio use cases to provide deeper device and content history across an ever-increasing landscape of devices and services at home.
UEIC’s trailing-12-month levered FCF margin of 8.06% is 49.7% higher than the industry average of 5.38%.
UEIC’s net sales and adjusted gross profit for the fiscal fourth quarter that ended December 31, 2023, stood at $97.59 million and $29.47 million, respectively. For the same quarter, its adjusted net income and earnings per share stood at $918 thousand and $0.07, respectively.
As of December 31, 2023, UEIC’s total current liabilities amounted to $161.15 million, compared to $216.47 million as of December 31, 2022.
For the quarter ending September 30, 2024, UEIC’s revenue and EPS are expected to increase 3.6% and 237.5% year-over-year to $110.92 million and $0.27, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 18.2% over the past six months, closing the last trading session at $9.74.
UEIC’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to Buy in our proprietary rating system.
UEIC has a B grade for Value and Sentiment. Within the Technology - Electronics industry, it is ranked #4. To see UEIC’s Growth, Momentum, Stability, and Quality ratings, click here.
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CAJPY shares were unchanged in premarket trading Wednesday. Year-to-date, CAJPY has gained 12.23%, versus a 6.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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