Despite facing a setback owing to several macroeconomic factors last year, the tech industry made a robust recovery propelled by powerful megatrends such as the Internet of Things (IoT), Artificial Intelligence (AI), and 5G connectivity.
In light of such megatrends, it could be an opportune time to load up the shares of four fundamentally sound tech stocks: Spirent Communications plc (SPMYY), TransAct Technologies Incorporated (TACT), Panasonic Holdings Corporation (PCRFY) and Daktronics, Inc. (DAKT), that look bound to make profits.
But before diving into the stock fundamentals, let's first explore the industry landscape.
The technology hardware industry’s ascent is primarily fueled by the increasing adoption of cutting-edge technologies. The rise of Artificial Intelligence (AI) and machine learning, in particular, have ignited a substantial demand for intricately specialized hardware components.
The global AI in hardware market is projected to hit $20.88 billion in 2023, growing at a CAGR of 24.1%, and is poised to reach a value of $48.18 billion by 2027, showcasing a CAGR of 23.3%.
Furthermore, IoT technology continues to bolster enterprise digital transformation, sparking substantial demand for interconnected hardware, including sensors, processors, and wireless solutions. As per a Mordor Intelligence report, the IoT devices market is projected to grow at a CAGR of 23.3% and reach $336.64 billion by 2028.
According to research and markets, the global hardware market expanded from $111.44 billion in 2022 to $121.34 billion in 2023, exhibiting an impressive CAGR of 8.9%. This upward trajectory is projected to continue as the hardware market is forecasted to reach $164.21 billion in 2027, with a CAGR of 7.9%.
With these positive prospects in mind, let's now dissect each of the four stocks given above from the B-rated Technology - Hardware industry, starting with the fourth one.
Stock #4: Spirent Communications plc (SPMYY)
Headquartered in Crawley, the United Kingdom, SPMYY offers automated test and assurance solutions in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company operates in Lifecycle Service Assurance and Networks & Security segments.
On September 26, SPMYY unveiled a software-based version of its O-DU wraparound test solution that is scalable to support continuous integration, continuous delivery, and continuous testing (CI/CD/CT) pipelines. The company’s advanced testing solutions should benefit its network testing capabilities.
In the same month, SPMYY launched Spirent CloudSure, a fully cloud-native solution to ensure resilient 5G services. This automated test platform validates cloud-native network functions in 5G networks, enabling reliable service delivery, cost reduction, enhanced customer experience, and a competitive edge and addresses the challenges of cloud-native deployment models in 5G networks.
SPMYY’s trailing-12-month Return On Common Equity (ROCE) and Return On Total Assets (ROTA) of 17.07% and 11.75% are significantly higher than the 1.13% and 0.03% industry averages, respectively.
For the first half of 2023, SPMYY’s revenue amounted to $223.90 million, while its adjusted operating profit came in at $11.60 million. Moreover, the company’s adjusted profit before tax and EPS stood at $14.80 million and $2.10, respectively.
Analysts expect SPMYY’s revenue for the fiscal year ending December 2024 to increase marginally year-over-year to $485.82 million. The stock gained 7.7% intraday to close the last trading session at $4.81.
SPMYY’s POWR Ratings reflect this robust outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and Quality and a B for Value. Among the 56 stocks in the B-rated Technology - Hardware industry, it is ranked #4. To see the other ratings of SPMYY for Growth, Momentum, and Sentiment, click here.
Stock #3: TransAct Technologies Incorporated (TACT)
TACT pioneers software-driven technology and printing solutions for diverse markets, encompassing food service technology, point of sale automation, and casino and gaming. Its products are available under the BOHA!, AccuDate, EPICENTRAL, Epic, and Ithaca brands.
TACT’s trailing-12-month ROCE and ROTA of 13.26% and 8.40% are considerably higher than the industry averages of 1.13% and 0.03%, respectively.
For the second quarter that ended June 30, 2023, TACT’s net sales increased 57.7% year-over-year to $19.91 million. Its adjusted EBITDA came in at $3.18 million, compared to a loss of $2.54 million in the prior year’s quarter.
In addition, the company’s adjusted net income and adjusted net income per common share stood at $2.16 million and $0.22, compared to a net loss and loss per share of $2.38 million and $0.24 in the previous year’s quarter, respectively.
The company’s revenue for the fiscal year ending December 2023 is expected to increase 24.5% year-over-year to $72.40 million. Analysts expect TACT’s EPS for the ongoing year to be $0.32. It has an impressive estimate history, beating both EPS and revenue estimates in each of the trailing four quarters.
TACT’s shares have surged 47.3% over the past year and 7.3% over the past six months, closing the last trading session at $6.01.
TACT’s strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
TACT has an A grade for Value and Sentiment and a B for Quality. It has ranked #3 within the same B-rated industry.
Click here to access additional TACT ratings for Growth, Momentum, and Stability.
Stock #2: Panasonic Holdings Corporation (PCRFY)
Headquartered in Kadoma, Japan, PCRFY researches, develops, manufactures, sells, and services various electrical and electronic products internationally. It operates through five broad segments: Lifestyle; Automotive; Connect; Industry; and Energy.
On September 21, PCRFY and Nouveau Monde Graphite Inc. (NMG) announced that they had made progress toward a definitive offtake agreement for NMG's carbon-neutral active anode material used in Electric Vehicle (EV) batteries.
This collaboration aligns with governmental initiatives and supports PCRFY's commitment to reducing its carbon footprint. It should position PCRFY as a key player in the growing environmentally responsible battery materials market.
PCRFY’s trailing-12-month cash from operations of $4.33 billion is significantly higher than the $223.80 million industry average, while its trailing-12-month ROTA of 4.78% is 22.8% higher than the industry average of 3.89%.
PCRFY’s net sales for the six-month period that ended September 30, 2023, rose 1.4% year-over-year to ¥4.12 trillion ($27.52 billion). The company’s operating profit rose 28.8% from the prior-year period to ¥192.84 billion ($1.29 billion).
Net profit attributable to PCRFY rose 168.7% year-over-year to ¥288.38 billion ($1.93 billion). Also, its EPS came in at ¥123.51, representing an increase of 168.7% from the same period last year.
For the fiscal year ending March 2024, PCRFY’s EPS is expected to increase 45.2% year-over-year to $1.22. Its revenue is set to increase significantly from the prior year to $56.81 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 33.6% to close the last trading session at $9.59. It has also increased 14.9% year-to-date.
PCRFY’s positive prospects 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 Value and a B for Stability. It is ranked #2 in the industry. To see PCRFY’s Growth, Momentum, Sentiment, and Quality ratings, click here.
Stock #1: 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.
On August 4, DAKT announced the addition of 14 new LED displays at Gillette Stadium in Foxborough, Massachusetts, including the largest outdoor videoboard in a sports venue in the country.
These additions expanded the digital landscape by 29,500 square feet, now totaling 47 DAKT LED displays, offering a colossal 48,500 square feet of the digital canvas within Gillette Stadium.
DAKT’s trailing-12-month ROCE and ROTA of 15.36% and 6.17% are considerably higher than the 1.13% and 0.03% industry averages, respectively. Its trailing-12-month Return On Total Capital (ROTC) of 18.36% is 643.3% higher than the industry average of 2.47%.
DAKT’s net sales for the first quarter that ended July 29, 2023, increased 35.3% year-over-year to $232.53 million. Its gross profit increased 175.8% from the prior-year quarter to $71.15 million.
Its net income came in at $19.20 million, compared to a net loss of $5.33 million in the year-ago quarter. Also, its earnings per share came in at $0.42, compared to a loss per share of $0.12 in the year-ago quarter.
The consensus EPS estimate of $0.12 for the next quarter (ending January 2024) indicates a 141.4% year-over-year rise. Similarly, the consensus revenue estimate of $203.50 million for the same quarter reflects a 10% increase from the year-ago value.
The stock has gained 185.8% over the past year to close the last trading session at $9.69. It has gained 243.6% year-to-date.
DAKT’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 Growth and Value and a B for Sentiment and Quality. It is ranked first in the Technology - Hardware industry. To see DAKT’s Momentum and Stability ratings, 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.
PCRFY shares were trading at $9.36 per share on Monday afternoon, down $0.24 (-2.45%). Year-to-date, PCRFY has gained 13.12%, versus a 9.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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