The tech services industry is rapidly growing, with a wide range of services such as software development, IT consulting, cybersecurity, cloud computing, and digital marketing driving its success. Moreover, the increasing integration of digital technologies and demand for digital services are among most significant factors fueling this growth.
Amid this backdrop, investors could consider adding quality tech stocks, Box, Inc. (BOX), NetScout Systems, Inc. (NTCT), and Dropbox, Inc. (DBX), to their portfolios. These stocks are currently trading under $30 and boasts strong upside potential. Before exploring the fundamentals of these stocks, let’s first understand what’s shaping the tech industry’s prospects.
The tech services industry is experiencing rapid growth fueled by continuous innovations and advancements in products to meet the increasing digital demands across various sectors. Gartner predicts global IT spending to reach $5.06 trillion by 2024, reflecting an impressive 8% increase from the previous year. This trajectory puts worldwide IT spending on a track to surpass $8 trillion well before the end of this decade.
The tech services industry is majorly driven by businesses' increasing reliance on technology across almost all industries. Many companies have been pivoting to remote work and digital solutions. This has created a huge demand for tech services to help businesses adapt and thrive in the new digital economy.
Additionally, the increasing adoption of emerging technologies such as artificial intelligence, blockchain, and the Internet of Things, is contributing to the growth of the tech services industry. These technologies are creating new opportunities for tech services companies to offer cutting-edge solutions to their clients. The U.S. IT services market is forecasted to reach $630.76 billion by 2029, indicating a robust 6.5% CAGR.
With these favorable trends in mind, let's delve into the fundamentals of the three Technology - Services stocks, starting with the third in line.
Stock #3: Box, Inc. (BOX)
BOX provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device.
On April 9, 2024, BOX announced that Bulletproof, an award-winning independent global brand agency, selected BOX as its single centralised cloud platform to manage content and production work. Bulletproof deployed BOX to eliminate on-premise servers and facilitate secure collaboration with clients and partners.
On March 14, 2024, BOX announced that the Administrative Office of the U.S. Courts selected BOX to power secure cloud content management and collaboration for the Defender Services Office (DSO). With BOX, DSO can securely share content internally and externally with investigators, Federal Public Defenders, and U.S. District Courts.
BOX’s trailing-12-month asset turnover ratio of 0.92x is 50.6% higher than the industry average of 0.61x. Its trailing-12-month Return on Total Capital and Return on Total Assets of 6.99% and 11.73% are 158.2% and 604.5% higher than the industry averages of 2.71% and 1.66%, respectively.
For the fiscal first quarter that ended April 30, 2024, BOX’s revenue amounted to $264.66 million, up 5.1% year-over-year. Its non-GAAP gross profit grew 8.2% from the year-ago quarter to $212.18 million. The company’s non-GAAP net income attributable to common stockholders stood at $58.40 million and $0.39 per share, up 22.9% and 21.9% over the prior-year quarter, respectively.
Analysts expect BOX’s revenue and EPS for the quarter ending July 31, 2024, to increase 3% and 12.4% year-over-year to $269.20 million and $0.40, respectively. The company surpassed the Street revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Over the past nine months, the stock has gained 2.7%, closing the last trading session at $25.58. Wall Street analysts expect the stock to hit $30.17 in the near term, indicating a potential upside of 17.9%.
BOX’s POWR Ratings reflect this positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
BOX has an A grade for Growth and Quality and a B for Value. It is ranked #8 out of 79 stocks in the Technology - Services industry. Click here to see BOX’s Momentum, Stability, and Sentiment ratings.
Stock #2: NetScout Systems, Inc. (NTCT)
NTCT provides service assurance and cybersecurity solutions to protect digital business services against disruptions in the U.S., Europe, Asia, and internationally.
NTCT’s trailing-12-month EBITDA margin of 16.18% is 66.9% higher than the industry average of 9.69%. Similarly, its trailing-12-month gross profit margin and EBIT margin of 77.41% and 7.14% are 56.1% and 50.9% higher than the industry averages of 49.59% and 4.73%, respectively.
NTCT’s total revenue for the fiscal fourth quarter that ended March 31, 2024, came in at $203.44 million. Its non-GAAP gross profit amounted to $157.05 million. Moreover, its non-GAAP net income stood at $39.82 million, up 46.5% over the prior-year quarter. Also, its non-GAAP net income per share grew 44.7% year-over-year to $0.55.
For the quarter ending December 31, 2024, NTCT’s revenue and EPS are expected to increase 5.2% and 5.5% year-over-year to $229.50 million and $0.77, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has declined 14.4% over the past three months to close the last trading session at $17.84. Wall Street analysts expect the stock to hit $24 in the near term, indicating a potential upside of 34.5%.
NTCT’s POWR Ratings reflect its robust prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system.
NTCT has an A grade for Growth and a B for Value and Quality. Within the same industry, it is ranked #6. Get NTCT’s Momentum, Stability, and Sentiment ratings here.
Stock #1: 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 upgrade to a paid subscription plan for premium features.
On April 24, 2024, DBX announced new security, organization, and sharing features to give teams the control, flexibility, and speed to get work done from anywhere. Using the lessons learned from Virtual First, the Dropbox playbook for distributed work, these tools were designed to help teams get work done quickly and seamlessly from DBX.
DBX’s trailing-12-month Return on Total Assets of 18.48% is considerably higher than the industry average of 1.66%. Likewise, its trailing-12-month EBIT margin and net income margin of 17.56% and 20.50% are 271.1% and 631% higher than the industry averages of 4.73% and 2.80%, respectively.
For the fiscal first quarter that ended March 31, 2024, DBX’s revenue and non-GAAP gross profit stood at $631.30 million and $533.80 million, up 3.3% and 6.1% year-over-year, respectively. For the same quarter, its non-GAAP net income and net income per share increased 34.6% and 38.1% over the prior-year quarter to $196.70 million and $0.58, respectively.
Street expects DBX’s EPS and revenue for the quarter ending June 30, 2024, to increase 2.6% and 1.2% year-over-year to $0.52 and $630.01 million, respectively. The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters.
DBX has declined 12.5% over the past month, closing the last trading session at $20.76. Wall Street analysts expect the stock to reach $27.75 in the near term, indicating a potential upside of 33.7%.
DBX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Value. It is ranked first in the Technology - Services industry. Click here for the additional POWR Ratings of DBX (Momentum, Stability, and Sentiment).
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DBX shares were trading at $20.89 per share on Thursday afternoon, up $0.13 (+0.63%). Year-to-date, DBX has declined -29.14%, versus a 15.31% 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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