The technology industry has the potential to grow significantly due to the rising digitalization across various sectors and the integration of cutting-edge technologies. Given the industry’s solid growth prospects, investors could consider buying fundamentally strong tech stocks Nidec Corporation (NJDCY), EchoStar Corporation (SATS), and Mastech Digital, Inc. (MHH) for year-end gains.
Before delving deeper into their fundamentals, let’s discuss the industry landscape first.
Technology stocks faced the brunt of rising interest rates last year. However, technology stocks have made a rousing comeback with the tech-heavy Nasdaq Composite rising 41.5% year-to-date. The rally has been fueled by the hype around generative AI and the Federal Reserve’s signal of three rate cuts next year.
Last week, the Fed maintained its benchmark interest rate between 5.25% and 5.50%, the highest in 22 years. However, the central bank signaled that it would likely cut interest rates by 75 basis points next year, up from its previous forecast of 50 basis points. Falling interest rates are likely to boost growth companies' stock prices, including tech stocks.
The technology industry is benefiting from rapid digitization across different sectors. Due to investments in digitization, there is consistent demand for technological advancements, software solutions, and hardware innovations.
Moreover, there has been a rise in digital transformation initiatives, leading to increased remote work, virtual communication, etc. This has driven the demand for quality hardware. Additionally, the growing integration of advanced technologies like artificial intelligence, machine learning, and the Internet of Things (IoT) will further drive demand for advanced hardware.
The IT hardware market is expected to increase at a CAGR of 7.9% to reach $177.11 billion by 2028. The proliferation of technology across various sectors like healthcare, automotive, industrial applications, and others has boosted the demand for electronic components. With devices becoming more advanced and interconnected, the need for high-quality components is growing fast.
The global electronic components market is expected to grow at a CAGR of 6.8% to reach $368.40 billion by 2032. Furthermore, easing inflation and robust consumer spending will likely boost spending on tech services. Gartner forecasts that spending on IT services will rise 7.3% year-over-year to $1.40 trillion in 2023. Next year, the spending is expected to increase 10.4% over the prior-year to $1.55 trillion.
Considering these conducive trends, let’s now dive into the fundamentals of the stocks mentioned above from the technology industry.
Nidec Corporation (NJDCY)
Headquartered in Kyoto, Japan, NJDCY develops, manufactures, and sells motors, electronics, optical components, and other related products internationally. The company offers medium- and large-size motors, small-size and precision motors, motor-related products, units and modules, automotive components, mechanical equipment/machine tools, inspection and measuring equipment, etc.
On October 6, NJDCY and Brazil’s Embraer (ERJ) announced they had received approval for its joint venture, Nidec Aerospace LLC. This transaction combines the complementary synergies and distinct areas of expertise of two world-class engineering conglomerates to develop Electric Propulsion Systems (EPS) for the aerospace sector.
NJDCY is expected to invest more than $77.70 million in Nidec Aerospace and begin mass production by 2026.
In terms of forward GAAP P/E, NJDCY’s 17.87x is 17.6% lower than the 21.67x industry average. Its 1.60x forward EV/Sales is 10.5% lower than the 1.79x industry average. Likewise, its 10.69x forward EV/EBITDA is 7% lower than the 11.49x industry average.
For the fiscal second quarter ended September 30, 2023, NJDCY’s net sales increased marginally year-over-year to ¥594.61 billion ($4.18 billion). Its operating profit rose 7.6% over the year-ago quarter to ¥55.63 billion ($391.19 million). Additionally, the company’s profit for the period attributable to owners of the parent came in at ¥42.04 billion ($295.62 million).
Also, for six months ended September 30, 2023, NJDCY’s net cash provided by operating activities rose 150.7% year-over-year to ¥141.28 billion ($993.47 million).
Street expects NJDCY’s revenue for the quarter ending June 30, 2024, to increase 4.3% year-over-year to $4.22 billion. Its EPS for fiscal 2024 is expected to increase 274.5% year-over-year to $0.54. Over the past month, the stock has gained 3% to close the last trading session at $9.73.
NJDCY’s solid prospects are reflected in its POWR Ratings. 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 an A grade for Stability and a B for Growth. It is ranked #16 out of 36 stocks in the A-rated Technology – Hardware industry. Click here to see the additional ratings of NJDCY for Value, Momentum, Sentiment, and Quality.
EchoStar Corporation (SATS)
SATS offers global networking technologies and services worldwide. The company operates in two segments, Hughes and EchoStar Satellite Services (ESS). Its Hughes segment provides broadband tech, hardware, and satellite solutions to government and enterprise clients. Its ESS segment offers owned/leased satellites on a full-time/occasional basis to U.S. government, ISPs, news, and private sector customers.
On November 16, 2023, Hughes Network Systems, a SATS company, announced the deployment of its ultra-high-density satellite JUPITER™ 3. Hughes will now test the satellite communications with ground equipment, which is the final step before initiating customer broadband services.
The satellite will double its broadband capacity to 500 Gbps across North and South America. This strengthens SATS' market position, offering enhanced connectivity services for rural areas, airlines, corporations, governments, and consumers.
In terms of forward EV/Sales, SATS’s 0.49x is 72.5% lower than the 1.78x industry average. Its 1.56x forward EV/EBITDA is 81.7% lower than the 8.54x industry average. Likewise, its 9.17x forward EV/EBIT is 40.9% lower than the 15.51x industry average.
SATS’ revenue for the third quarter that ended September 30, 2023, amounted to $413.07 million. Its total adjusted EBITDA came in at $125.81 million. The company’s net income attributable to SATS stood at $3.24 million. Also, its EPS came in at $0.04.
SATS’ revenue for the quarter ending June 30, 2024, is expected to increase 0.9% year-over-year to $457.30 million. It surpassed EPS estimates in three of the trailing four quarters, which is impressive. Over the past month, the stock has gained 33% to close the last trading session at $13.31.
It’s no surprise that SATS has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It has a B grade for Value and Quality. It is ranked #9 out of 42 stocks in the Technology – Electronics industry. To see the additional ratings of SATS for Growth, Momentum, Stability, and Sentiment, click here.
Mastech Digital, Inc. (MHH)
MHH provides digital transformation IT services to large, medium-sized, and small companies. It operates through two segments: Data and Analytics Services and IT Staffing Services. In addition, the company offers data management and analytics services.
In terms of forward non-GAAP PEG, MHH’s 1.39x is 20.5% lower than the 1.74x industry average. Its 0.47x forward Price/Sales is 66.4% lower than the 1.40x industry average. Likewise, its 1.02x forward Price/Book is 62.1% lower than the 2.69x industry average.
For the third quarter ended September 30, 2023, MHH’s total revenues amounted to $47.78 million. Its gross profit came in at $12.57 million. The company’s non-GAAP net income and EPS were $1.26 million and $0.11, respectively. Its total gross margin came in at 26.3%, compared to 25.8% in the prior-year quarter.
Analysts expect MHH’s revenue for fiscal 2024 to increase marginally year-over-year to $201.53 million. Its EPS for the quarter ending March 31, 2024, is expected to increase at 33.3% year-over-year to $0.16. Over the past month, the stock has declined 5.2% to close the last trading session at $8.14.
MHH’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value. It is ranked #18 out of the 75 stocks in the Technology-Services industry. Beyond what is stated above, we’ve also rated MHH for Growth, Momentum, Stability, Sentiment and Quality. Get all the MHH ratings here.
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NJDCY shares were trading at $9.69 per share on Monday afternoon, down $0.04 (-0.41%). Year-to-date, NJDCY has declined -23.66%, versus a 24.92% 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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