Rising interest rates, multi-decade high inflation, and economic uncertainty sent tech stocks tumbling last year. But the technology sector has been on a roll in 2023, with the Nasdaq Composite up approximately 31.3% year-to-date. Tech stocks have been buoyed by major breakthroughs in generative AI, led by OpenAI’s ChatGPT chatbot and the promise of a new era of growth for the sector.
Amid rising optimism in the sector, fundamentally sound tech stocks Panasonic Holdings Corporation (PCRFY), TransAct Technologies Incorporated (TACT), and Daktronics, Inc. (DAKT) could be ideal investments now for potential gains.
After robust growth through the COVID-19 pandemic, as consumers and enterprises purchased new hardware devices, demand weakened in 2022, with global PC shipments dropping by more than 15%. During the first quarter of 2023, a decline of 30% was recorded, mainly attributed to the economic slowdown.
Despite macroeconomic headwinds, the tech hardware industry is well-poised to experience considerable growth and expansion in the long run, driven by rapid digital transformation worldwide. With businesses digitizing their operations, growing spending on data center infrastructure, networking infrastructure, and cloud set-up propel the hardware industry’s growth.
As per a report by Research and Markets, the global hardware market is expected to grow from $111.44 billion in 2022 to $121.34 billion in 2023 at a CAGR of 8.9%. In addition, the market is projected to reach $164.21 billion by 2027, growing at a 7.9% CAGR.
Furthermore, the growing adoption of emerging technologies, including artificial intelligence (AI), the Internet of Things (IoT), machine learning (ML), augmented reality (AR), virtual reality (VR), and the metaverse, should boost the hardware industry’s prospects.
For instance, specialized hardware is usually used to execute AI applications faster and more effectively, including high-performance computing (HPC) systems, graphics processing units (GPUs), central processing units (CPUs), data storage systems like solid-state drives (SSDs), and hard disk drives (HDDs), and networking infrastructure such as routers and switches.
According to ReportLinker, the global AI in hardware market is projected to reach $48.18 billion by 2027, growing at a CAGR of 23.3%.
Meanwhile, investors’ interest in tech hardware stocks is evident from the S&P 500 Technology Hardware & Equipment Industry Group Index’s more than 30% year-to-date returns.
Given the industry’s bright growth prospects, fundamentally sound tech stocks PCRFY, TACT, and DAKT could be solid additions to your portfolio.
Let’s discuss the fundamentals of these stocks in detail.
Panasonic Holdings Corporation (PCRFY)
Headquartered in Kadoma, Japan, PCRFY, together with its subsidiaries, develops, manufactures, and sells several electrical and electronic products globally. The company operates through five segments: Lifestyle; Automotive; Connect; Industry; and Energy.
On July 5, 2023, PCRFY announced the upcoming release of the version 2.3 firmware update program for the LUMIX GH6 to offer a more flexible workflow. This new version for GH6 will support 4K 120p/100p HDMI output and BRAW recording to Blackmagic Design external recorder. PCRFY would deliver future-ready, advanced solutions through these updates, driving its profitability.
On April 15, PCRFY announced firmware update programs for the HC-X2, HC-X20, HC-X2000, and HC-X1500 camcorders. Version updates will support background recording and super slow-motion recording in the MP4 file format, which until now has been limited to MOV.
Also, the updates will enable the use of face detection/tracking AE&AF function when shooting in manual mode. For every model, the user can assign a button to seven additional functions. Such developments should bode well for the company.
In terms of forward EV/Sales, PCRFY is currently trading at 0.52x, 56.5% lower than the industry average of 1.19x. Likewise, the stock’s forward EV/EBITDA multiple of 5.29 is 46.6% lower than the industry average of 9.92.
For the first that ended June 30, 2023, PCRFY’s net sales increased 2.8% year-over-year to ¥2.03 trillion ($14.08 billion). Its operating profit grew 41.9% from the year-ago value to ¥90.37 billion ($626.73 million). The company’s profit before income tax came in at ¥108.73 billion ($754.06 million), an increase of 47.8% from the prior year’s quarter.
Additionally, net profit attributable to PCRFY increased 310.5% from the prior-year quarter to ¥200.93 billion ($1.39 billion), and earnings per share grew 310.4% year-over-year to ¥86.06.
Analysts expect PCRFY’s revenue to increase 3,117.4% year-over-year to $59.26 billion for the fiscal year ending March 2024. The company’s revenue for the current year is expected to grow 30.3% from the previous year to $1.10. Moreover, it has topped the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
PCRFY’s stock has gained 30.3% over the past six months and 33.9% over the past year to close the last trading session at $11.39.
PCRFY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PCRFY has an A grade for Value and a B for Stability and Sentiment. Within the Technology - Hardware industry, the stock is ranked first among 42 stocks.
Click here for the additional POWR Ratings for Growth, Momentum, and Quality for PCRFY.
TransAct Technologies Incorporated (TACT)
TACT designs, develops, and markets transaction-based and specialty printers and terminals internationally. The company provides thermal printers and terminals to generate labels, coupons, and transaction records, like receipts, tickets, and other documents, as well as printed logging and data plotting. Also, it offers an EPICENTRAL print system and BOHA! Terminal.
On May 2, TACT announced the launch of its all-new BOHA! Terminal 2 food safety and FDA-compliant grab ‘n go labeling solution. The BOHA! Terminal 2 improves on the original BOHA! Terminal with more speed, print resolution, label widths, screen brightness and sensitivity, and flexibility. The new, improved launch might boost the company’s revenue stream.
TACT’s forward EV/Sales of 0.92x is 67.5% lower than the industry average of 2.82x. And the stock’s trailing-12-month Price/Sales multiple of 1.01 is 63.1% lower than the industry average of 2.72. Moreover, its trailing-12-month Price/Book of 1.91x compares to the 3.03x industry average.
On August 9, TACT reported preliminary second-quarter results that ended June 30, 2023. Its net sales for the second quarter were $19.90 million, up 58% year-over-year. Its gross profit grew 101.9% over the prior-year quarter to $10.90 million. The company’s operating income was $1.20 million, compared to an operating loss of $3 million for the second quarter of 2022.
In addition, TACT’s adjusted EBITDA came in at $3.20 million versus an adjusted EBITDA loss of $2.50 million in the year-ago quarter. The company’s adjusted net income was $2.20 million or $0.22 per share, compared to an adjusted net loss of $2.40 million or $0.24 per share in the comparable 2022 period, respectively.
Street expects TACT’s revenue for the fiscal year (ending December 2023) to increase 26.2% year-over-year to $73.39 million. The company’s EPS for the ongoing year is expected to be $0.38, compared to a loss per share of $0.60 in the prior year.
Shares of TACT have gained 15.1% year-to-date and 62.4% over the past year to close the last trading session at $7.31.
TACT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
Within the 42-stock Technology – Hardware industry, it is ranked #2. The stock has an A grade for Sentiment and a B for Growth, Momentum, and Value.
To access the additional ratings of TACT for Stability and Quality, click here.
Daktronics, Inc. (DAKT)
DAKT designs, manufactures, markets, and sells electronic display systems and related products for sporting, commercial, and transportation appliances globally. The company operates through Commercial; Live Events; High School Park and Recreation; Transportation; and International segments. It sells its products through direct sales and resellers.
On May 11, DAKT enhanced its financial position by closing a new three-year $75 million senior secured credit facility (the New Senior Debt Facility), with JPMorgan Chase maturing on May 11, 2026. Also, the company closed a $25 million convertible debt financing agreement (the Junior Capital Financing) with major shareholder Alta Fox Capital Management, LLC.
DAKT’s Board of Directors expects the completion of these transactions to provide the company with the working capital and liquidity needed to continue executing its business plan and growth strategy.
In terms of trailing-12-month EV/Sales, DAKT is trading at 0.47x, 83.3% lower than the industry average of 2.83x. Likewise, the stock’s trailing-12-month EV/EBITDA and Price/Sales multiples of 8.30 and 0.47 is favorably lower than the industry average of 15.11 and 2.73, respectively.
For the fourth quarter that ended April 29, 2023, DAKT’s net sales increased 29.4% year-over-year to $209.86 million, and its gross profit grew 74.2% from the year-ago value to $52.14 million. Also, the company’s operating income was $18.26 million, compared to a loss of $319 thousand in the prior-year quarter.
Furthermore, the company’s net income and earnings per share amounted to $21.40 million and $0.47, compared to a loss of 1.12 million and $0.02 per share in the previous year’s quarter, respectively.
The consensus revenue estimate of $845.70 million for the fiscal year (ending April 2024) reflects a 12.1% year-over-year improvement. Likewise, the $0.69 consensus EPS estimate for the ongoing year represents a 360% rise year-over-year. In addition, analysts expect DAKT’s EPS to grow 10% per annum over the next five years.
The stock has gained 26.9% over the past month and 98.7% over the past six months to close the last trading session at $7.83.
DAKT’s POWR Ratings reflect a promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
DAKT has a grade of A for Growth and a B for Value and Sentiment. Within the same industry, the stock is ranked #3.
Beyond what we stated above, we also have DAKT’s ratings for Momentum, Stability, and Quality. Get all DAKT ratings here.
What To Do Next?
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PCRFY shares were unchanged in premarket trading Friday. Year-to-date, PCRFY has gained 37.66%, versus a 17.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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