Despite the macroeconomic headwinds, tech demand is expected to remain steady. Therefore, quality tech stocks Key Tronic Corporation (KTCC), Leidos Holdings, Inc. (LDOS) and Box, Inc. (BOX) could be wise additions to your portfolio now.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the tech industry.
Despite a challenging macroeconomic environment, global tech spending is expected to remain resilient in the face of significant digital business transformations. Gartner predicts that global IT investment will reach $4.7 trillion this year, representing a 4.3% increase year-on-year.
The US IT services market is estimated to reach $306.10 billion by 2028, increasing at a CAGR of 7.1%. Big data and machine intelligence are driving increased demand for upgraded IT infrastructure. Moreover, the healthcare industry is rapidly expanding, with medical offices embracing new technologies to better patient care.
In addition, the global IT services industry is expected to grow at a CAGR of 9.7% until 2030. Moreover, investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF’s (IYW) 10.4% returns over the past six months and 22.5% over the past nine months.
In light of these encouraging trends, let’s look at the fundamentals of the three top-rated Technology - Services stocks, beginning with number 3.
Stock #3: Key Tronic Corporation (KTCC)
KTCC offers contract electronic manufacturing services (EMS) to original equipment manufacturers (OEMs) in the United States, Mexico, China, and Vietnam. The company provides integrated electronic and mechanical engineering, assembly, sourcing and procurement, logistics, and new product testing services.
KTCC’s trailing-12-month EV/Sales of 0.32x is 86.7% lower than the industry average of 2.39x. Its trailing-12-month Price/Sales of 0.07x is 97% lower than the industry average of 2.38x.
KTCC’s trailing-12-month ROCE of 4.04% is 257.6% higher than the industry average of 1.13%. Its trailing-12-month ROTA of 1.23% is significantly higher than the 0.03% industry average.
KTCC’s net sales increased 28.8% year-over-year to $162.61 million in the fourth quarter that ended July 1, 2023. Its gross profit increased 18.2% from the prior-year quarter to $13.90 million. Its operating income was $4.22 million, up 86.8% year-over-year.
Also, the company’s net income rose 9.6% from the year-ago value to $1.60 million. In addition, the company’s net income per share came in at $0.10, an increase of 11.1% year-over-year.
Shares of KTCC has lost 10.6% over the past month to close the last trading session at $3.89.
KTCC’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.
KTCC also has an A grade for Growth and Momentum and a B for Value, Stability and Sentiment. It is ranked #15 out of 80 stocks in the Technology - Services industry. Click here for the additional POWR Ratings for Quality for KTCC.
Stock #2: Leidos Holdings, Inc. (LDOS)
LDOS together with its subsidiaries, provides services and solutions in the defense, intelligence, civil, and health markets in the United States and internationally. It operates through three segments: Defense Solutions; Civil; and Health.
On October 5, 2023, LDOS is launching ProSight™, its newest enterprise software platform. ProSight, which provides airports and organizations with high-risk points of entry with a consolidated security management system, will be unveiled Oct. 10-13 in Munich, Germany. By launching ProSight, LDOS hopes to transform the way airports and organizations handle their security systems.
LDOS’s forward EV/Sales multiple of 1.16 is 24.3% lower than the industry average of 1.54. Its forward non-GAAP multiple of 13.55% is 16.2% lower than the industry average of 16.17.
LDOS’s trailing-12-month ROCE of 16.46% is 23.1% higher than the 13.37% industry average. Its trailing-12-month asset turnover ratio of 1.15x is 43.1% higher than the 0.80x industry average.
LDOS’s revenues came in at $3.84 billion in the fiscal second quarter that ended June 30, 2023, up 6.7% year-over-year. Its adjusted EBITDA came to $420 million, up 14.8% year-over-year.
The company’s net income grew 22.1% from the year-ago value to $210 million, while its non-GAAP EPS increased 13.2% year-over-year to $1.80.
Street expects LDOS’s revenue to increase 5% year-over-year to $15.12 billion for the year ending December 2023. Its EPS is expected to grow at marginally year-over-year to $6.68 for the same period. It surpassed EPS estimates in three of four trailing quarters. LDOS’s shares has lost marginally over the past month to close the last trading session at $90.49.
It’s no surprise that LDOS has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Stability, Value, Momentum and Sentiment. It is ranked #11 in the same industry.
Beyond what is stated above, we’ve also rated LDOS for Growth and Quality. Get all LDOS ratings here.
Stock #1: 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. Its Software-as-a-Service platform allows users to collaborate on content, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features.
On October 11, 2023, BOX unveiled Box Hubs to make it easier than ever to securely curate and publish content across the enterprise, deeply integrated by Box AI. This would help customers find answers to critical questions easily, automatically summarize vast amounts of information, and effortlessly create new content – all based on the documents users organize in a Hub.
BOX’s forward non-GAAP P/E of 16.14x is 19.8% lower than the industry average of 20.11x. Its forward non-GAAP PEG multiple of 0.81 is 51.7% lower than the industry average of 1.67.
BOX’s trailing-12-month ROTA of 4.64% is significantly higher than the industry average of 0.03%. Its trailing-12-month levered FCF margin of 30.52% is 308.5% higher than the 7.47% industry average.
For the fiscal second quarter that ended July 31, 2023, BOX’s revenue and gross profit stood at $261.43 million and $194.42 million, up 6.3% and 7.3% year-over-year, respectively.
For the same quarter, its net income attributable to common stockholders came at $5.74 million, compared to a net loss attributable to common stockholders of $3.26 million. Its net income per share stood at $0.04, compared to a net loss per share of $0.02 in the year-ago quarter.
The consensus revenue estimate of $1.04 billion for the year ending January 2024 represents a 5.2% increase year-over-year. Its EPS is expected to grow at 24.3% year-over-year to $1.49 for the same period. It surpassed EPS estimates in all four trailing quarters. BOX’s shares have lost marginally over the past month to close the last trading session at $24.07.
BOX’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 #24 in the same industry. It has an A grade for Growth and Quality and a B for Value. To see additional BOX’s ratings for Momentum, Sentiment and Stability, click 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.
LDOS shares were trading at $91.11 per share on Monday morning, up $0.62 (+0.69%). Year-to-date, LDOS has declined -12.34%, versus a 9.26% 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.
3 Technology Services Stocks to Add to Your Portfolio in November StockNews.com
