Despite macroeconomic challenges, the tech industry is expected to grow as a result of growing digital transformation, rising demand, and government initiatives. Given the industry’s solid growth prospects, investors could consider buying fundamentally sound tech stocks such as TaskUs, Inc. (TASK), Outbrain Inc. (OB), and Celestica Inc. (CLS) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the tech industry.
The digital transformation market is anticipated to be worth $2.37 billion by 2030, growing at an 18.6% CAGR. The growing digitization trend and the increasing requirement for effective resource utilization are likely to fuel market expansion.
The global IT services industry is expected to grow at a 9.7% CAGR until 2030. The market is expanding rapidly as a result of broad adoption of cloud computing, cybersecurity, innovation, automation, data security concerns, AI, machine learning, big data, IoT, and compliance with data privacy rules.
The information technology market is predicted to reach $1.36 billion by 2029, growing at a 14.7% CAGR. Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 9.7% returns over the past six 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: TaskUs, Inc. (TASK)
TASK provides digital outsourcing services for companies worldwide. It offers digital customer experience that consists of omni-channel customer care services primarily delivered through digital channels; and other solutions, including customer care services for new product or market launches, trust and safety solutions, and customer acquisition solutions.
TASK’s forward EV/Sales of 1.24x is 25.2% lower than the industry average of 1.65x. Its forward EV/EBITDA of 5.37x is 50.7% lower than the industry average of 10.90x.
TASK’s trailing-12-month levered FCF margin of 17.03% is 203.4% higher than the industry average of 5.62%. Its trailing-12-month gross profit margin of 42.02% is 38.7% higher than the industry average of 30.30%.
TASK’s total current assets came in at $365.82 million for the period that ended June 30, 2023, compared to $341.43 million for the period that ended December 31, 2022. Its total assets came in at $917.72 million, compared to $902.02 million for the same period.
The consensus revenue estimate of $928.66 million for the year ending December 2024 represents a 2.6% increase year-over-year. Its EPS is expected to grow 5.8% year-over-year to $1.28 for the same period. It surpassed EPS estimates in all the four trailing quarters. TASK’s shares have lost 6.3% intraday to close the last trading session at $9.73.
TASK’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.
TASK also has a B grade for Value and Quality. It is ranked #28 out of 75 stocks in the Technology - Services industry. Click here for the additional POWR Ratings for Sentiment, Stability, Momentum, and Growth for TASK.
Stock #2: Outbrain Inc. (OB)
OB operates a global recommendation platform. The company offers Outbrain Engage, a product suite for media partners that provides data-driven recommendations and user engagement solutions. In addition, it provides solutions for advertisers with access to ad inventory supporting several formats and a suite of programmatic buying capabilities.
OB’s forward Price/Sales multiple of 0.24 is 78.6% lower than the industry average of 1.13. Its forward EV/Sales multiple of 0.16% is 91.2% lower than the industry average of 1.86.
OB’s trailing-12-month asset turnover ratio of 1.32x is 173% higher than the 0.48x industry average.
During the second quarter that ended June 30, 2023, OB reported an income before provision for income taxes of $15.35 million, compared to a loss of $8.66 million in the prior-year quarter. In addition, the company’s net income was $11.28 million or $0.21 per common share, compared to a net loss of $10.32 million or $0.18 a year ago, respectively.
Street expects OB’s revenue to increase marginally year-over-year to $997.87 million for the year ending December 2023. Its EPS is expected to come in at $0.24 for the same period. Over past nine months the stock has gained 30.1% to close the last trading session at $4.71.
OB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #27 in the same industry. It has a B grade for Value and Sentiment. To see additional OB’s ratings for Growth, Stability, Momentum, and Quality, click here.
Stock #1: Celestica Inc. (CLS)
CLS is a worldwide supply chain solutions provider headquartered in Toronto, Canada. Its segments are Advanced Technology Solutions and Connectivity & Cloud Solutions, offering design, manufacturing, testing, and after-market support across industries like defense, industrial, HealthTech, and communication.
CLS’ trailing-12-month EV/EBITDA multiple of 6.28 is 54% lower than the industry average of 13.65. Its trailing-12-month EV/EBIT multiple of 8.05% is 54.9% lower than the industry average of 17.84.
CLS’ trailing-12-month ROCE of 10.49% is 806.9% higher than the industry average of 1.16%. Its trailing-12-month ROTC of 10.04% is 324.3% higher than the 2.37% industry average.
For the fiscal second quarter that ended June 30, 2023, CLS’ revenue increased 12.9% year-over-year to $1.94 billion. Its non-IFRS adjusted gross profit also increased 20.7% from year-ago value to $187.30 million.
Its non-IFRS operating earnings and non-IFRS adjusted net earnings came in at $106.40 million and $66.60 million, registering 28.7% and 22.9% increases year-over-year, respectively. The company’s non-IFRS adjusted EPS also increased 25% from the prior-year quarter to $0.55.
Analysts expect CLS’ revenue to increase 8.9% year-over-year to $7.89 billion for the year ending December 2023. Its EPS is expected to grow 19.4% year-over-year to $2.27 for the same period. It surpassed EPS estimates in all the four trailing quarters. The stock has gained 189.8% over the past year to close the last trading session at $24.37.
It’s no surprise that CLS has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Momentum and Sentiment. It is ranked #25 in the same industry.
Beyond what is stated above, we’ve also rated CLS for Value, Stability and Quality. Get all CLS ratings here.
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CLS shares were trading at $23.73 per share on Tuesday afternoon, down $0.64 (-2.63%). Year-to-date, CLS has gained 110.56%, versus a 11.65% 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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