An increase in the outsourcing of non-core operations and the growing adoption of new technologies such as artificial intelligence and blockchain is expected to drive growth in the tech industry. However, supply chain issues and disrupted manufacturing processes continue to impact the tech market.
Therefore, while I think quality tech stock NetScout Systems, Inc. (NTCT) might be a solid buy now, AvePoint, Inc. (AVPT) might be best kept on hold, and Riot Platforms, Inc. (RIOT) might be best avoided in August, given its weak fundamentals.
Rapidly increasing digital transformation across industries, adoption of new technologies such as artificial intelligence, IoT, and blockchain, and a growing emphasis on leveraging the core competencies by outsourcing non-core operations are the major driving factors of the tech service market.
The global information technology market is expected to grow to $119.95 trillion in 2027 at a CAGR of 7.9%.
Moreover, IT outsourcing has become more than a simple cost-reduction technique with cloud migrations and service options. The United States IT Services market is expected to reach $306.10 billion by 2028, growing at a CAGR of 7.1% until 2028.
However, the pandemic has affected the supply chain and disrupted manufacturing processes, leading to a shortage of raw materials and a delay in product delivery. This situation has caused a decline in production levels and sales of Artificial Intelligence (AI) Chipset products.
Stock to Buy:
NetScout Systems, Inc. (NTCT)
NTCT provides service assurance and cybersecurity solutions to protect digital business services against disruptions in the United States, Europe, Asia, and internationally.
On July 25, 2023, NTCT announced its next-generation Omnis Cyber Intelligence (OCI) solution.
OCI is an advanced network detection and response (NDR) solution that uses highly scalable deep packet inspection (DPI) and multiple threat detection methods at the source of packet capture to detect threats in real-time and allows historical investigation of high-fidelity network metadata and packets.
On July 11, NTCT released its latest version of Arbor Edge Defense (AED) which includes new ML-based Adaptive DDoS Protection.
NTCT’s trailing-12-month gross profit margin of 75.61% is 53.4% higher than the 48.66% industry average. Its trailing-12-month EBITDA margin of 18.13% is 111.7% higher than the 8.57% industry average.
During the fiscal fourth quarter that ended March 31, 2023, NTCT’s total revenue increased 8.8% year-over-year to $208.10 million. Non-GAAP net income increased 25.7% year-over-year to $27.19 million and non-GAAP net income per share increased 31% year-over-year to $0.38.
Analysts expect NTCT’s EPS for the fiscal first quarter that ended June 2023 to increase 27.1% year-over-year to $0.31. Its revenue is expected to be $207.30 million for the same quarter. Also, it has surpassed EPS and revenue estimates in three of the trailing four quarters, which is impressive.
Shares of NTCT have gained 6.9% over the past three months to close the last trading session at $29.54.
NTCT’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth and Value and a B in Sentiment and Quality. It is ranked first out of 80 stocks in the Technology - Services industry.
Beyond what is stated above, we’ve also rated NTCT for Momentum and Stability. Get all NTCT ratings here.
Stock to Hold:
AvePoint, Inc. (AVPT)
AVPT provides cloud-native software platform solutions. It also offers software-as-a-service solutions and productivity applications.
On July 20, 2023, AVPT announced the evolution of its Cloud Backup offering and the latest milestone in its 20-year partnership with Microsoft Corporation (MSFT), working with them to integrate with Microsoft 365 Backup.
As one of the first providers to integrate with the Microsoft 365 Backup API, AVPT now provides a more sophisticated approach to protecting and quickly restoring customer and partner data in the event of a malicious attack or accidental data deletion.
On June 22, AVPT announced new functionality for Cloud Backup for Salesforce with FedRAMP (moderate) authorization and the addition of this product to marketplaces - including the AWS Marketplace, Azure Marketplace, and Salesforce AppExchange - to provide customers with a flexible acquisition process for their cloud-based products and solutions.
Its FedRAMP (moderate) status is part of AVPT’s commitment to upholding government security standards for government customers, including public sector and federal customers in the United States, and its availability of products across marketplaces demonstrates AVPT’s dedication to streamlining the deployment process.
While AVPT’s trailing-12-month gross profit margin of 71.84% is 47.6% higher than the 48.66% industry average, its trailing-12-month CAPEX/Sales of 1.29% is 45.4% lower than the 2.36% industry average.
AVPT’s total revenue increased 18.5% year-over-year to $59.57 million in the fiscal first quarter that ended March 31, 2023. Its non-GAAP gross profit increased 17.9% year-over-year to $42.59 million. However, its net loss came in at $9.18 million and its loss per share at $0.05.
Street expects AVPT’s EPS for the fiscal second quarter that ended June 2023 to increase 53.8% year-over-year to $0.01. Its revenue is expected to increase 10.7% year-over-year to $61.64 million for the same quarter. Also, it has surpassed revenue estimates in three of the trailing four quarters.
The stock plunged 2.3% over the past month to close the last trading session at $5.92.
The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
AVPT also has a C grade for Value, Momentum, Stability, and Quality. It is ranked #24 in the same industry.
For additional ratings for AVPT for Growth and Sentiment, click here.
Stock to Sell:
Riot Platforms, Inc. (RIOT)
RIOT operates as a Bitcoin mining company in North America. It operates through Bitcoin Mining; Data Center Hosting; and Engineering segments.
RIOT’s trailing-12-month gross profit margin of 16.40% is 66.3% lower than the 48.66% industry average. Its trailing-12-month asset turnover ratio of 0.18x is 70.3% lower than the 0.61x industry average.
During the fiscal first quarter that ended March 31, 2023, RIOT’s net loss came in at $55.69 million, compared to an income of $36.58 million in the previous-year quarter. Adjusted EBITDA decreased 40.9% year-over-year to $7.50 million and adjusted EPS declined 60% year-over-year to $0.04.
RIOT’s EPS is expected to be negative $0.21 during the fiscal second quarter that ended June 2023. Its revenue is expected to come in at $85.46 million in the same quarter. Also, it has failed to surpass EPS estimates in the trailing four quarters, which is disappointing.
The stock plunged 3.9% over the past five days to close the last trading session at $17.95.
RIOT’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary system.
RIOT also has an F grade for Value, Stability, and Quality and a D in Sentiment. It is ranked #78 in the same industry.
Click here to see the POWR Ratings of RIOT (Growth and Momentum).
What To Do Next?
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NTCT shares were trading at $29.70 per share on Wednesday morning, up $0.16 (+0.54%). Year-to-date, NTCT has declined -8.64%, versus a 19.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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