Despite the prevailing market uncertainties, the technology industry remains constantly evolving and continues to push boundaries, fostering innovation across diverse sectors. Furthermore, as businesses and industries increasingly acknowledge the significant value that Artificial Intelligence (AI) can offer, the demand for AI technologies, expertise, and solutions is experiencing a continuous surge.
Given the robust demand for technology across various sectors, it could be wise to buy the shares of three fundamentally sound tech companies, Seiko Epson Corporation (SEKEY), KVH Industries, Inc. (KVHI), and AstroNova, Inc. (ALOT), that seems well-positioned to capitalize on the industry’s growth and could help garner substantial returns.
But before delving into the fundamentals of the featured stocks, let us look at how the tech industry has been faring so far.
According to Deloitte, the technology industry has not only survived but flourished amid the disruptions caused by the pandemic in recent years. The crisis catalyzed many tech companies, propelling them to expedite digital transformation, enhance supply chains, explore as-a-service models, and bolster their talent pool.
Putting the post-pandemic struggles in the rear-view, the tech industry made a solid comeback as companies from various industries jumped on the bandwagon, debuting their latest generative AI-powered chatbots, AI assistants, and AI services. The biggest story of the first half of 2023 is the explosion of interest around generative AI, which is poised to transform our lives and work.
The global AI market is expected to hit around $1.87 trillion by 2032, exhibiting an impressive CAGR of 39.1% from 2023 to 2032.
Further, the global computer hardware market grew from $658.32 billion in 2022 to $705.17 billion in 2023, exhibiting a CAGR of 7.1%. This growth could be attributed to a substantial boost from the rapid expansion of investments in smart city projects worldwide.
These projects aim to leverage information and communication technologies to enhance urban services' efficient management and operation. As a result, the demand for computer hardware is expected to rise significantly.
Considering the aforementioned factors, the technology sector is expected to maintain a favorable position this year, primarily due to its consistent ability to innovate and thrive despite macroeconomic uncertainties. Therefore, investing in SEKEY, KVHI, and ALOT could be beneficial in terms of potential returns.
Let us now evaluate the fundamentals of the featured stocks in detail:
Seiko Epson Corporation (SEKEY)
Headquartered in Suwa, Japan, SEKEY develops, manufactures, sells, and provides products for printing solutions, visual communications, manufacturing-related, wearables, and other businesses. It operates through three segments: Printing Solutions; Visual Communications; and Manufacturing-related and Wearables.
On June 15, SEKEY launched the M-G370PDG (M-G370G), a new addition to its Inertial Measurement Unit (IMU) portfolio. The M-G370G has a cutting-edge six degrees of freedom sensor, enhancing its performance capabilities.
By expanding its range of compact, lightweight, energy-efficient one-inch platform products, SEKEY is providing its customers with increased choices, enabling them to select the product that best suits their specific needs and applications in terms of functionality and performance.
On April 12, SEKEY partnered with Loftware to transform and modernize customers’ labeling workflows. The partnership involves integrating the Epson ColorWorks series of color label printers with Loftware’s NiceLabel Cloud platforms.
The collaboration offers several benefits, including decreased reliance on IT, reduced printing errors, and cost savings by minimizing pre-printed label inventory.
For the fiscal year 2023, which ended on March 31, 2023, SEKEY’s revenue increased 17.8% year-over-year to ¥1.33 trillion ($9.36 billion), while its gross profit rose 11.5% from the year-ago value to ¥466.65 billion ($3.28 billion).
During the same period, its profit for the period and EPS amounted to ¥75.05 billion ($528.31 million) and ¥220.70, respectively. Also, its profit before tax grew 6.8% from the year-ago value to ¥103.76 billion ($730.42 million).
Street expects SEKEY’s revenue for the fiscal first quarter (ended June 30, 2023) to be $2.12 billion. Further, its revenue is projected to register a 30.4% year-over-year growth, reaching $9.28 billion in the fiscal year 2024. Moreover, it surpassed the revenue estimates in three of the trailing four quarters, which is promising.
Also, its revenue and EBIT have grown at CAGRs of 8.4% and 32.9% over the past three years, respectively, while its net income and EPS have improved at 113.3% and 114.9% CAGRs over the same period, respectively.
The stock has gained 8.9% over the past nine months to close the last trading session at $7.72.
SEKEY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Stability, and Quality. In the 43-stock Technology - Hardware industry, it is ranked #4. Click here to see SEKEY’s ratings for Growth, Momentum, and Sentiment.
KVH Industries, Inc. (KVHI)
KVHI designs, develops, manufactures, and markets mobile connectivity products and services for the marine and land mobile markets in the United States and internationally. Its products include TracVision, TracNet, TracPhone, KVH Link, SPORTSlink, MOVIElink, etc.
On May 9, KVHI introduced the KVH ONE™ OpenNet Program, an exciting initiative for leisure and commercial vessels. This program enables vessels of any size or type to leverage their current non-KVH VSAT antenna to access worldwide VSAT coverage, round-the-clock airtime, technical support, and a comprehensive suite of value-added services provided by KVH.
On January 19, KVHI launched two new value-added services, KVH Managed Firewall, and KVH Cloud Email, for commercial vessels and fleets.
KVH Managed Firewall offers an enhanced layer of cybersecurity protection against potential cyber threats, while KVH Cloud Email is a secure and reliable email solution that enables commercial seafarers to send and receive emails using any accessible data connection. This development reflects KVHI’s dedication to providing customers with enhanced features and choices.
KVHI’s net sales increased marginally year-over-year to $33.69 million for the first quarter (ended March 31, 2023). Its total costs and expenses declined 8.5% from the year-ago value to $34.24 million. Also, its adjusted EBITDA amounted to $3.27 million, up 82.3% year-over-year.
The consensus revenue estimate of $38.95 million for the third quarter (ending September 30, 2023) represents a 10.8% increase year-over-year. The consensus EPS estimate of $0.14 for the current quarter reflects a 133.3% improvement year-over-year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of its trailing four quarters.
Its tang book value has grown at a 7.4% CAGR over the past three years, while its total assets rose at a marginal CAGR over the same period.
Over the past year, the stock has gained 3.2% to close the last trading session at $8.73.
KVHI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Growth and a B for Sentiment. Within the same industry, it is ranked #13. Click here to see the other ratings of KVHI for Value, Momentum, Stability, and Quality.
AstroNova, Inc. (ALOT)
ALOT designs, develops, manufactures, and distributes specialty printers, and data acquisition and analysis systems, including hardware and software, which incorporate advanced technologies to acquire, store, analyze, and present data in multiple formats. The company operates in two segments: Product Identification (PI); and Test & Measurement (T&M).
In the first quarter of fiscal 2024, which ended April 29, 2023, ALOT’s revenue increased 14.2% year-over-year to $35.42 million, while its gross profit rose 15.4% from the year-ago value to $12.39 million.
The company’s net income amounted to $848 thousand and $0.11 per share, up 99.5% and 83.3% from the prior-year quarter, respectively. In addition, its operating income improved 91.2% from the year-ago value to $1.46 million.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 4.7% and 16.5%, respectively. Likewise, its net income and EPS have improved at 84.5% and 81.2% CAGRs over the same period.
ALOT’s shares have gained 20.8% over the past nine months and 17.7% over the past year to close the last trading session at $13.90.
It’s no surprise that ALOT has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Value, Stability, and Sentiment. Out of 43 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have ALOT’s ratings for Momentum and Quality. Get all ALOT ratings here.
What To Do Next?
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SEKEY shares were trading at $7.71 per share on Tuesday morning, down $0.01 (-0.18%). Year-to-date, SEKEY has gained 5.04%, versus a 16.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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