Demand for technology is expected to remain strong as enterprises continue to invest heavily in digitizing their processes and embracing new technologies. So, investors interested in investing in quality tech stocks can consider buying Zoom Video Communications, Inc. (ZM), Teradata Corporation (TDC), and NetScout Systems, Inc. (NTCT).
According to Gartner, IT spending this year is forecasted to increase 4.3% year-over-year to $4.70 trillion.
John-David Lovelock, Distinguished VP Analyst at Gartner, “Digital business transformations are beginning to morph. IT projects are shifting from a focus on external facing deliverables such as revenue and customer experience, to more inward facing efforts focused on optimization.”
Moreover, the US IT services market is estimated to reach $306.10 billion by 2028, increasing at a CAGR of 7.1%.
In addition, the global 5G services market is expected to grow at 49% CAGR until 2028. The increasing use of 5G services across multiple industries, the shift toward smart cities with intelligent transportation systems, and the introduction of autonomous vehicles and real-time analytics are some of the primary reasons driving the industry.
Investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF (IYW) 28.9% returns over the past six months and 34% over the past nine months.
Take a detailed look at the stocks mentioned above:
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.
ZM’s forward EV/EBIT multiple of 8.53 is 53.1% lower than the industry average of 18.20. Its forward EV/EBITDA multiple of 8% is 46.1% lower than the industry average of 14.84.
ZM’s trailing-12-month levered FCF margin of 34.48% is 394.6% higher than the industry average of 6.97%. Its trailing-12-month ROCE of 2.18% is 251% higher than the industry average of 0.62%.
For the fiscal second quarter ended July 31, 2023, ZM’s revenue rose 3.6% year-over-year to $1.14 billion. Its non-GAAP income from operations increased 17.3% over the prior-year quarter to $461.68 million. The company’s non-GAAP net income increased 26.6% year-over-year to $409.57 million. Its non-GAAP EPS came in at $1.34, representing an increase of 27.6% year-over-year.
The consensus revenue estimate of $4.49 billion for the year ending January 2024 represents a 2.3% increase year-over-year. Its EPS is expected to grow 6.8% year-over-year to $4.67 for the same period. It surpassed EPS estimates in all four trailing quarters. ZM’s shares have gained 4% over the past three months to close the last trading session at $67.70.
ZM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ZM has a B grade for Growth, Value, and Quality. Within the Technology – Services industry, it is ranked #9 out of 76 stocks. Click here for the additional POWR Ratings for Stability, Sentiment, and Momentum for ZM.
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 July 25, 2023, TDC announced the acquisition of Stemma Technologies, a cloud-native data catalog solution well-known for its application in AI and machine learning. TDC’s analytics value and self-service analytics in AI and ML analytics will be enhanced due to the acquisition. With 20 built-in data interfaces, Stemma’s solution provides high-grade security and automatic data insight, improving TDC’s data fabric and Vantage platform.
TDC’s forward Price/Sales multiple of 2.40 is 8.4% lower than the industry average of 2.62. Its forward EV/EBITDA multiple of 10.23% is 31.1% lower than the industry average of 14.84.
TDC’s trailing-12-month ROTC of 10.08% is 326% higher than the 2.37% industry average. Its trailing-12-month ROCE of 26.36% is significantly higher than the 0.62% industry average.
For the fiscal second quarter ended June 30, 2023, TDC’s revenues rose 7.4% year-over-year to $462 million. Its non-GAAP gross profit increased 6.5% year-over-year to $280 million. Its non-GAAP net income rose 40% year-over-year to $49 million. Also, non-GAAP EPS came in at $0.48, representing an increase of 45.5% year-over-year.
Street expects TDC’s revenue to increase 2.8% year-over-year to $1.85 billion for the year ending December 2023. Its EPS is expected to grow 20.9% year-over-year to $1.98 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Over the past nine months, the stock has gained 32.7% to close the last trading session at $44.33.
TDC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Growth and Quality and a B for Value. To see additional TDC’s ratings for Stability, Momentum, and Sentiment, click here.
NetScout Systems, Inc. (NTCT)
NTCT provides assurance and cybersecurity solutions. Its primary products are Service Assurance Solutions for network and application performance, business intelligence analytics, and cybersecurity solutions.
On July 25, 2023, NTCT announced its next-generation Omnis Cyber Intelligence (OCI) system for sophisticated network detection and response. In the face of escalating cyber threats, OCI gives security teams real-time packet-level insight across their digital infrastructure. It aids in the rapid identification of threats and the acceleration of investigations by gathering network-based forensic evidence to minimize the Mean Time to Response (MTTR).
NTCT’s forward EV/Sales multiple of 1.96 is 27.6% lower than the industry average of 2.70. Its forward EV/EBITDA multiple of 7.76% is 47.7% lower than the industry average of 14.84.
NTCT’s trailing-12-month levered FCF margin of 19.17% is 170% higher than the 6.97% industry average. Its trailing-12-month ROCE of 3.18% is 411.4% higher than the 0.62% industry average.
NTCT’s total revenue increased marginally year-over-year to $211.14 million in the first quarter that ended June 30, 2023, while its gross profit grew 6.4% from the year-ago value to $160.74 million. Its non-GAAP income from operations increased 20.8% year-over-year to $29.59 million.
In addition, its non-GAAP net income amounted to $22.71 million and $0.31 per share, representing increases of 25.8% and 29.2% from the prior-year quarter, respectively.
Analysts expect NTCT’s revenue to increase marginally year-over-year to $922.50 million for the year ending March 2024. Its EPS is expected to grow at 3.9% year-over-year to $2.27 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained marginally intraday to close the last trading session at $28.25.
It’s no surprise that NTCT has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Growth and Quality. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated NTCT for Sentiment, Momentum, and Stability. Get all NTCT ratings here.
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ZM shares rose $0.50 (+0.74%) in premarket trading Monday. Year-to-date, ZM has gained 0.65%, versus a 16.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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