The tech sector has garnered significant investors’ interest this year despite the macroeconomic uncertainties, as evidenced by the NASDAQ Composite's impressive year-to-date return of 34.2%.
However, while I think quality tech stock eGain Corporation (EGAN) might be a solid buy now, Oracle Corporation (ORCL) might be best kept on hold, and Robinhood Markets, Inc. (HOOD) might be best avoided, given its weak fundamentals.
There has been a substantial increase in enterprise data, creating a surge in demand for related services and solutions. Furthermore, the market is bolstered by growing concerns regarding network security and privacy.
As businesses and individuals become more aware of the risks associated with data breaches and unauthorized access, there is a heightened demand for robust security measures and privacy safeguards.
The global software market is expected to grow at a CAGR of 11.5% from 2023 to 2030.
Moreover, the rapid increase in the automation of business processes across various industries like retail, manufacturing, healthcare, and transportation fuels the growing demand for business software and services. This trend emphasizes the need for innovative technologies and tools.
As a result, the global business software and services market is expected to expand at a CAGR of 11.9% until 2030.
In addition, the global artificial intelligence market has experienced significant growth in recent years. The global Artificial Intelligence (AI) market is projected to reach approximately $2.58 trillion by 2032, growing at a CAGR of 19% during that period.
Stock to Buy:
eGain Corporation (EGAN)
EGAN specializes in developing, licensing, implementing, and supporting customer service infrastructure software solutions. Its primary offering is the Knowledge Hub, a unified solution that automates, augments, and orchestrates customer engagement. EGAN provides subscription services for cloud-based access to its software and offers professional services.
EGAN’s trailing-12-month gross profit margin of 71.89% is 47.8% higher than the 48.66% industry average. Additionally, its 14.05% trailing-12-month levered FCF margin is 104.1% higher than the industry average of 6.89%.
On July 20, 2023, EGAN announced a partnership with Talkdesk®, Inc., a global cloud contact center leader for enterprises of all sizes, to help businesses modernize customer service with the power of AI-infused knowledge management and rich digital capabilities.
The partnership brings to market a new offering, the Talkdesk-eGain Connector, listed on both companies’ marketplaces – Talkdesk AppConnect™ and eGain Marketplace™.
On June 27, EGAN announced the launch of a unique pilot program to help businesses adopt generative AI in a risk-free way—eGain® Innovation in 30 Days™ for Generative AI. eGain Innovation in 30 Days™ is a guided innovation consumption model that is safe, easy, and risk-free
In the fiscal third quarter ended March 31, 2023, EGAN’s total revenue came in at $23.01 million. Its non-GAAP gross profit came in at $15.79 million. Its non-GAAP net income came in at $1.08 million. In addition, its non-GAAP EPS came in at $0.03.
EGAN’s EPS and revenue are expected to increase 83.3% and marginally year-over-year to $0.06 and $23.71 million, respectively, in the to-be-announced quarter ended June 30, 2023. It surpassed the EPS estimates in each of the trailing four quarters.
The stock gained marginally intraday to close the last trading session at $6.92. It has a 24-month beta of 0.66.
EGAN’s POWR Ratings reflect its 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, each weighted to an optimal degree.
It also has an A grade for Value and Sentiment and a B for Stability and Quality. Within the 136-stock Software – Application industry, it is ranked first.
To access EGAN’s ratings for Growth and Momentum, click here.
Stock to Hold:
Oracle Corporation (ORCL)
ORCL provides products and services that address all aspects of corporate IT environments, including applications, platforms, and infrastructure worldwide. The company operates through cloud services and license support; cloud license; hardware; and services segments.
ORCL’s trailing-12-month EBIT margin of 22.37% is 522.7% higher than the 4.39% industry average. However, its trailing-12-month asset turnover ratio of 0.41x is 32.7% lower than the industry average of 0.61x.
On July 26, ORCL announced that Rakuten Mobile had chosen Oracle Communications' cloud native converged policy and charging solutions to support its fast-growing 4G and 5G services, with plans to onboard to Rakuten Symphony's Symworld™ Marketplace.
On July 20, ORCL announced the general availability of MySQL HeatWave Lakehouse, delivering an industry-first by enabling customers to query data in object storage as fast as querying data inside the database.
MySQL HeatWave Lakehouse supports a variety of object store file formats such as CSV, Parquet, and export files from other databases. It can combine object storage file data and MySQL database transactional data in the same query.
While ORCL’s four-year average dividend yield is 1.58%, its current annual dividend of $1.60 translates to a 1.39% yield on the current price level. The company’s dividends have grown at a CAGR of 14.5% over the past three years.
In the fiscal quarter that ended May 31, 2023, ORCL’s total revenue increased 16.9% year-over-year to $13.84 billion. The company’s non-GAAP operating income grew 10.1% year-over-year to $6.16 billion, while its adjusted net income increased 9.3% from the year-ago quarter to $4.66 billion. Also, its non-GAAP EPS came in at $1.67, up 8.4% year-over-year.
Analysts expect ORCL’s revenue for the quarter ending August 2023 to increase 8.8% year-over-year to $12.45 billion. Its EPS for the current quarter is expected to increase by 11.1% from the year-ago quarter to $1.14. Moreover, the company surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
The stock has declined 1.2% over the past month to close the last trading session at $116.40. Its 24-month beta is 1.08.
ORCL’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
The stock also has a C grade for Growth, Value, and Sentiment. It is ranked #40 in the same industry.
Click here to see the additional ratings of ORCL (Stability, Momentum, and Quality).
Stock to Sell:
Robinhood Markets, Inc. (HOOD)
HOOD operates a financial services platform that enables users to invest in stocks, ETFs, options, gold, and cryptocurrencies. Its educational solutions, such as Snacks, Learn, Newsfeeds, and Crypto Learn and Earn, teach users investing basics, provide free premium news, and an understandable business news summary for novice investors.
HOOD’s trailing-12-month net income margin of negative 76.47% compares to the 25.66% industry average. And the stock’s trailing-12-month asset turnover ratio of 0.06x is 67.9% lower than the industry average of 0.20x.
During the fourth quarter that ended March 31, 2023, HOOD’s total revenues decreased 48.1% year-over-year to $299 million. The company also reported a loss before income taxes of $391 million, and a net loss of $392 million, resulting in a net loss per share of $0.45.
Street expects HOOD to report a loss per share of $0.01 for the to-be-reported quarter that ended June 2023. Moreover, the company missed the consensus revenue estimates in three of four trailing quarters, which is disappointing.
Shares of HOOD plummeted 4% intraday to close the last trading session at $12.23. It has a 24-month beta of 1.62.
HOOD’s grim fundamentals are reflected in its POWR Ratings. It has an overall D rating, equating to a Sell in our proprietary rating system.
The stock has an F grade for Value and a D for Quality and Stability. It is ranked #127 in the same industry.
In addition to the POWR Ratings highlighted above, one can access HOOD’s additional grades for Growth, Momentum and Sentiment here.
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EGAN shares were trading at $7.17 per share on Friday morning, up $0.25 (+3.61%). Year-to-date, EGAN has declined -20.60%, versus a 20.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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