The fast-paced digitalization across industries and the rapid adoption of advanced technologies are driving the tech sector’s growth. Moreover, with the Federal Reserve indicating interest rate cuts sometime this year, the tech sector is expected to be a significant beneficiary.
Therefore, investing in fundamentally strong tech stocks Garmin Ltd. (GRMN), NetScout Systems, Inc. (NTCT), and Stratasys Ltd. (SSYS) could be wise now.
Before diving deeper into the fundamentals of these stocks, let’s understand what’s shaping the tech industry’s prospects.
Despite a hawkish Fed, 2023 was a good year for the tech sector as the Nasdaq Composite rose 43%, marking its best year since 2020. The gains were driven by the hype around generative AI and expectations of the central bank halting rate hikes. With the possibility of lower borrowing costs in the near term, tech companies are well-poised to benefit.
In today’s world, businesses are harnessing advanced technologies to increase productivity, drive innovation, and gain a competitive edge.
Gartner expects global IT spending to rise 6.8% year-over-year to $5 trillion this year. Businesses have been ramping up their spending digitalization initiatives to enhance processes, streamline operations, improve customer services, etc. In addition, the move to cloud-based services is also boosting the demand for tech services. Spending on IT services is forecasted to increase 8.7% year-over-year to $1.50 trillion.
Meanwhile, the adoption of emerging technologies like artificial intelligence, machine learning, the Internet of Things (IoT), etc., are all driving the demand for hardware as these technologies require advanced hardware to meet the complex processing and data storage requirements. The IT hardware market is expected to grow at a CAGR of 7.9% to reach $191.03 billion by 2029.
Furthermore, businesses are integrating 3D printing into their capabilities, as it allows them to reduce production time, reduce costs and wastage, improve workflows, and help with customization. The global 3D printing market is projected to grow at a CAGR of 24.3% to reach $83.90 billion by 2029.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 45.4% returns over the past year.
Considering these conducive trends, let’s take a look at the fundamentals of the featured tech stocks.
Garmin Ltd. (GRMN)
GRMN is based in Schaffhausen, Switzerland. It designs, develops, manufactures, markets, and distributes a range of wireless devices globally. Its segments include Fitness, Outdoor, Aviation, Marine, and Auto. The company sells its products through independent retailers, dealers, distributors, installation and repair shops, and original equipment manufacturers, as well as an online web shop, garmin.com.
On January 8, 2024, GRMN announced that it would provide state-of-the-art infotainment systems to select Yamaha motorcycles and smart scooters. The company will provide its Garmin Automotive OEM solutions, which include Bluetooth connectivity, media integration, and enhanced navigation functionality, helping support Yamaha Motor’s Connected Vision program, which seeks to attain 100% vehicle connectivity.
GRMN Automotive OEM’s Managing Director Matt Munn said, “The addition of Garmin infotainment solutions to Yamaha Motor’s product lineup is a testament to our growing capability and exceptional product quality in the auto OEM environment. We are honored by the confidence Yamaha Motor has entrusted in Garmin, and we look forward to continuing to deliver high-quality motorcycle and scooter solutions for many years to come.”
On September 20, 2023, GRMN announced the completion of the acquisition of JL Audio. This company designs and manufactures audio solutions, including speakers, amplifiers, subwoofers and other audio components for marine, aftermarket automotive, powersports, home and RV customers.
In terms of the trailing-12-month net income margin, GRMN’s 20.60% is 342.7% higher than the 4.65% industry average. Likewise, its 23.61% trailing-12-month EBITDA margin is 116.1% higher than the industry average of 10.92%. Furthermore, the stock’s 4.04% trailing-12-month Capex/Sales is 32.4% higher than the industry average of 3.05%.
GRMN’s net sales for the third quarter ended September 30, 2023, rose 12% year-over-year to $1.28 billion. Its gross profit increased 8.7% over the prior-year quarter to $728.57 million. The company’s operating income rose 12.9% year-over-year to $270.37 million. In addition, its net income increased 22% year-over-year to $257.24 million. Also, its EPS came in at $1.34, representing an increase of 22.9% year-over-year.
Analysts expect GRMN’s EPS and revenue for the quarter ended December 31, 2023, to increase 3.6% and 8.6% year-over-year to $1.40 and $1.42 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 21.7% to close the last trading session at $119.49.
GRMN’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a 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 Stability and Quality. It is ranked #20 out of 36 stocks in the A-rated Technology – Hardware industry. Click here to see GRMN’s additional ratings for Growth, Value, Momentum, and Sentiment.
NetScout Systems, Inc. (NTCT)
NTCT provides service assurance and cybersecurity solutions to protect digital business services against disruptions in the United States, Europe, Asia, and internationally. The company offers nGeniusONE management software, specialized platforms, and analytic modules that enable its customers to analyze and troubleshoot traffic in radio access and Wi-Fi networks. It also provides nGeniusPULSE and NGenius Business Analytics solutions.
In terms of the trailing-12-month gross profit margin, NTCT’s 77.46% is 59.1% higher than the 48.69% industry average. Likewise, its 6.26% trailing-12-month EBIT margin is 35.2% higher than the industry average of 4.63%. Furthermore, the stock’s 17.14% trailing-12-month levered FCF margin is 93% higher than the industry average of 8.88%.
For the fiscal third quarter, which ended December 31, 2023, NTCT’s Service revenue rose 1.8% year-over-year to $122.24 million. Its total revenue stood at $218.07 million. The company’s non-GAAP gross profit came in at $178.46 million. Also, its non-GAP income from operations amounted to $63.25 million.
In addition, its non-GAAP net income and EPS came in at $52.03 million and $0.73, respectively.
For the quarter ending March 31, 2024, NTCT’s EPS and revenue are expected to increase 40.8% and 2.9% year-over-year to $0.54 and $214.05 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has declined 1.5% to close the last trading session at $21.51.
NTCT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
Within the Technology – Services industry, it is ranked #15 out of 75 stocks. It has a B grade for Growth and Value. To see the additional ratings of NTCT for Momentum, Stability, Sentiment, and Quality, click here.
Stratasys Ltd. (SSYS)
SSYS provides connected polymer-based 3D printing solutions. It offers a range of 3D printing systems, which includes polyjet printers, Fused Deposition Modeling (FDM) printers, stereolithography printing systems, origin P3 printers, and SAF printers for manufacturing, tooling and rapid prototyping, and various vertical markets. It also provides consumable materials and stereolithography materials.
On November 14, 2023, SSYS announced that it completed the sale of the Stratasys Direct, Inc. facility in Austin, Texas, to Cumberland Additive, Inc. The sale of the metal facility in Austin follows the sale of Stratasys Direct urethane facilities in August. These sales are part of the company’s operational transformation efforts that will drive better focus, accountability, internal efficiency, speed to customer, and profitability.
In terms of the trailing-12-month gross profit margin, SSYS’ 44.13% is 46.7% higher than the 30.08% industry average.
SSYS’ net sales for the third quarter, which ended September 30, 2023, came in at $162.13 million. Its non-GAAP gross profit stood at $78.27 million. The company’s non-GAAP operating income came in at $4.09 million. In addition, its non-GAAP net income amounted to $2.45 million. Also, its non-GAAP EPS came in at $0.04.
Street expects SSYS’ EPS for the quarter ending June 30, 2024, to increase 40% year-over-year to $0.06. Its revenue for fiscal 2024 is expected to increase 3.1% year-over-year to $644.78 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 30% to close the last trading session at $13.22.
SSYS’ POWR Ratings reflect solid prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It is ranked first out of seven stocks in the Technology – 3D Printing industry. It has a B grade for Growth and Momentum. Click here to see the other ratings of SSYS for Value, Stability, Sentiment, and Quality.
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.
GRMN shares were unchanged in premarket trading Thursday. Year-to-date, GRMN has declined -7.04%, versus a 2.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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