From streamlining processes to lowering costs to using cloud computing and big data analytics tools, businesses globally are upscaling their investments in digital transformation. Rapidly growing digital transformation across several industries is the primary driving factor of the technology services industry.
Further, the rising adoption of emerging technologies creates a solid demand for tech services. Amid this backdrop, fundamentally sound tech stocks TravelSky Technology Limited (TSYHY), GigaCloud Technology Inc. (GCT), and Issuer Direct Corporation (ISDR), which exhibit solid growth prospects, could be ideal additions to your portfolio this month.
Before diving deeper into the fundamentals of these stocks, let’s discuss the factors that shape the tech services industry’s bright outlook.
Businesses across multiple industries increasingly invest in digital transformation to become more modern and agile, gain a competitive edge, improve customer satisfaction, and boost operational efficiency. Businesses use IT services for numerous purposes, from standard chores like handling employee records to complex processes like supply chain and operations management.
Despite a challenging macroeconomic environment, tech spending will likely remain robust due to rapid business transformations worldwide. According to the forecast by Gartner, global IT spending is expected to total $4.7 trillion this year, up 4.3% year-over-year.
Moreover, the COVID-19 pandemic has positively impacted the technology services market. The sudden shift to remote work created a significant need for tech solutions. Also, cloud computing experienced solid growth during the pandemic as businesses migrated their operations to the cloud, necessitating tech services to manage and secure these environments.
Furthermore, growing concerns regarding data security and privacy protection boost the demand for tech services from companies across several industry verticals. As per a report by Mordor Intelligence, the IT services market is projected to reach $1.67 trillion by 2028, growing at a CAGR of 8.4% during the forecast period (2023-2028).
The widespread adoption of Software-as-a-Service (SaaS) and increased cloud-based offerings reflects strong demand for IT services. The industry’s growth is also significantly driven by the growing adoption of new advanced technologies such as Artificial Intelligence (AI), blockchain, 5G, Machine Learning (ML), Internet of Things (IoT), and Augmented Reality (AR).
Meanwhile, the United States IT Services market is estimated to reach $306.10 billion by 2028, exhibiting a CAGR of 7.1%.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 9.9% returns over the past six months and 34.4% year-to-date.
With these favorable trends in mind, let’s delve into the fundamentals of the three Technology - Services stock picks, beginning with the third choice.
Stock #3: Issuer Direct Corporation (ISDR)
ISDR is a communications and compliance company offering solutions for public relations and investor relations professionals internationally. It provides press release distribution, media databases, and newsroom through the media advantage platform; ACCESSWIRE, a news dissemination and media outreach service; and the Visual Webcaster platform.
On September 18, ISDR’s ACCESSWIRE launched its Press Release Optimizer (PRO). This brand-new offering provides companies of all sizes and industries the opportunity to boost their brand with thousands of extra views on their press release and the option to have an exclusive article written about their brand that is shared on social and earns backlinks.
The new offering should extend ISDR’s market reach and drive its growth and profitability.
On September 5, ACCESSWIRE launched its redesigned website – accesswire.com. As one of the top newswires across the industry, ACCESSWIRE is committed to providing its clients with the best experience and results, and this begins with a thoughtfully designed website that redefines the user experience and exemplifies the company’s dedication to innovation.
ACCESSWIRE’s newly redesigned site now includes a combination of its services and the offerings of its parent company, ISDR.
Also, on August 18, Newswire, a wholly owned subsidiary of ISDR, unveiled the Press Release Optimizer (PRO). Newswire’s approach to press release distribution combines their technology, press release distribution network, and their team’s expertise to assist companies in driving website traffic, building brand awareness, improving search engine rankings, and expanding reach.
TSYHY’s gross profit margin of 76.37% is 55.5% higher than the 49.10% industry average. Likewise, the stock’s net income margin of 5.85% is 187.8% higher than the industry average of 2.03%.
Over the past three years, ISDR’s revenue and EBITDA grew at CAGRs of 22.1% and 35.5%, respectively, while its net income increased at a CAGR of 12.3%. Over the same time frame, the company’s EPS and total assets grew at CAGRs of 13.5% and 25.7%, respectively.
For the second quarter that ended June 30, 2023, ISDR’s revenues increased 66.2% year-over-year to $9.65 million, and its gross profit grew 64.6% from the year-ago value to $7.32 million. The company’s adjusted EBITDA rose 101.5% from the previous year’s quarter to $3.02 million.
In addition, the company’s non-GAAP net income came in at $2.03 million, up 88.7% from the prior year’s quarter. Its non-GAAP net income per share grew 82.8% year-over-year to $0.53. Its adjusted free cash flow was $1.77 million, an increase of 64.2% year-over-year.
Analysts expect ISDR’s revenue for the fiscal year (ending December 2023) to increase 53% year-over-year to $35.97 million. The company’s revenue for the ongoing year is expected to grow 61.1% from the previous year to $1.53.
Shares of stock have plunged 9.9% over the past year to close the last trading session at $18.30.
ISDR’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Sentiment and a B for Growth and Value. Within the Technology - Services industry, ISDR is ranked #12 out of 75 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see ISDR’s ratings for Stability, Momentum, and Quality here.
Stock #2: TravelSky Technology Limited (TSYHY)
Headquartered in Beijing, the People’s Republic of China, TSYHY offers information technology solutions for the aviation and travel industry in the People’s Republic of China. The company primarily provides aviation information technology (AIT), distribution information technology, accounting, settlement, and clearing services.
TSYHY’s gross profit margin of 47.75% is 34.9% higher than the 35.41% industry average. And the stock’s EBITDA margin of 26.86% is 144% higher than the 11.01% industry average. Moreover, its trailing-12-month net income margin of 22.16% is 404.1% higher than the 4.40% industry average.
TSYHY’s EBIT and net income increased at CAGRs 30.7% and 21.1%, respectively, over the past three years. The company’s EPS grew at a CAGR of 20.8% over the same period. In addition, its total assets increased at an 8.2% CAGR over the same time frame.
For the six months that ended June 30, 2023, TSYHY’s operating income increased 45.6% year-over-year to RMB3.31 billion ($460.39 million). Its operating profits grew 220.1% from the year-ago value to RMB1.34 billion ($186.38 million). Also, net profit attributable to shareholders of the company rose 170.9% year-over-year to RMB1.20 billion ($166.91 million).
Additionally, the company’s earnings per share came in at RMB0.41, an increase of 173.3% year-over-year.
Street expects TSYHY’s revenues for the fiscal year (ending December 31, 2023) to increase 42.5% year-over-year to $1.09 billion. For the fiscal year 2024, the consensus revenue estimate of $1.29 billion indicates an improvement of 18.1% year-over-year.
Over the past year, TSYHY’s stock has gained 12.4% to close the last trading session at $17.07.
TSYHY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
TSYHY has an A grade for Quality and a B for Growth, Sentiment, and Stability. It is ranked #8 in the same industry.
Click here for TSYHY’s additional POWR Ratings (Momentum and Value).
Stock #1: GigaCloud Technology Inc. (GCT)
GCT offers end-to-end B2B e-commerce solutions for large parcel merchandise. The company’s marketplace connects manufacturers in Asia with resellers in the United States, Asia, and Europe to execute cross-border transactions across furniture, home appliances, fitness equipment, and other large parcel categories.
On September 22, GCT announced that it had entered three new warehouse leases. These warehouses are set to commence operations in October 2023, resulting in 24 total company warehouses globally. The additional capacity need was fueled by further expansion of GigaCloud’s B2B marketplace, ensuring customers get the logistical support needed to run their businesses.
The company’s decision to expand its warehouse footprint is a clear indicator of the continued organic growth of its marketplace.
On September 12, GCT entered a definitive agreement as the stalking horse bidder to acquire all the assets of Noble House Home Furnishings, LLC, and certain of its affiliates for $85 million in connection with Noble House’s Chapter 11 bankruptcy proceedings. Noble House is a leading indoor and outdoor home furnishings distributor, manufacturer, and retailer.
“With over 8,000 SKUs and a strong supply chain system, we believe Noble House will add significant depth to our 1P and 3P businesses, supplementing our already diverse range of product offerings,” said Larry Wu, Founder, Chairman and Chief Executive Officer of GCT.
In terms of trailing-12-month EBIT margin, GCT’s 11.33% is 54% higher than the 7.36% industry average. Likewise, the stock’s ROCE, ROTC, and ROTA of 23.04%, 11.90%, and 10.43% are favorably higher than the respective industry averages of 11.39%, 6.08%, and 3.85%.
GCT’s revenues increased 23.5% year-over-year to $153.10 million for the second quarter ended June 30, 2023. Its gross profit was $40.40 million, up 137.1% from the prior year’s quarter. The company’s adjusted EBITDA grew 219.3% year-over-year to $24.90 million.
Furthermore, the company’s net income rose 201.5% year-over-year to $18.40 million. Its net income per ordinary share came in at $0.45, an increase of 200% from the previous year’s period.
Analysts expect GCT’s EPS for the fiscal year ending December 2023 to increase 158.3% year-over-year to $1.55. The company’s revenue for the current year is expected to grow 22.5% year-over-year to $600.54 million.
The stock has gained 40.8% over the past six months and 65.3% year-to-date to close the last trading session at $9.04.
GCT’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
GCT has an A grade for Value and Quality. It also has a B grade for Growth and Sentiment. It is ranked #2 among 75 stocks in the Technology - Services industry.
To access additional ratings of GCT for Momentum and Stability, click here.
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TSYHY shares were unchanged in premarket trading Tuesday. Year-to-date, TSYHY has declined -18.65%, versus a 12.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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