Despite macroeconomic challenges, the technology industry is predicted to grow steadily over the long term, thanks to strong investment in R&D, constant innovation, and adaptability.
Given the industry’s growth prospects, investors could consider buying fundamentally sound tech stocks Nomura Research Institute, Ltd. (NRILY), Science Applications International Corporation (SAIC), and AUO Corporation (AUOTY) for solid returns.
Before discussing the fundamentals of these stocks in detail, let’s see what’s driving the prospects of the tech industry.
According to the Consumer Technology Association®, retail revenues in the United States consumer technology industry will increase by 2.8% to $512 billion in 2024 (up $14 billion from 2023). This indicates an increase in consumer spending on technology products and services, according to the CTA’s one-year industry forecast.
The global digital transformation market is estimated to reach $4.62 trillion by 2030, growing at a CAGR of 26.2%. The expansion of digital technologies in industries such as healthcare, retail, and manufacturing is being driven by operational efficiency, customer experience, and emerging technologies such as AI and IoT.
Furthermore, the information technology market is anticipated to reach $12.42 trillion by 2028 at a CAGR of 8.3%. Investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF’s (IYW) 25.8% returns over the past three months.
Considering these conducive trends, let’s take a look at the fundamentals of the three best tech stocks.
Nomura Research Institute, Ltd. (NRILY)
Based in Tokyo, Japan, NRILY provides management and system consulting, financial IT solutions for institutions, industrial IT solutions for various sectors, and IT platform services globally. It also operates data centers while providing information security services.
NRILY’s forward EV/EBITDA of 15.52x is marginally lower than the industry average of 15.62x.
NRILY’s trailing-12-month ROCE of 20.55% is significantly higher than the industry average of 1.74%. Its trailing-12-month ROTA of 9.07% is significantly higher than the industry average of 0.70%.
For the six months ended September 30, 2023, NRILY generated revenue and gross profit of ¥362.07 billion ($2.47 billion) and ¥128.37 billion ($873.99 million), up 6.8% and 9.3% year-over-year, respectively.
The company reported EPS of ¥64.09, up 5.7% from the previous-year quarter. Its cash and cash equivalents at the end of the period increased 7.8% from the prior-year quarter to ¥125.21 billion ($852.44 million).
The consensus revenue estimate of $5 billion for the year ending March 2024, increased 52.3% year-over-year. NRILY’s shares have gained 21.7% over the past year to close the last trading session at $29.50.
NRILY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NRILY also has an A grade for Stability and a B for Quality. It is ranked #5 out of 9 stocks in the A-rated Outsourcing - Tech Services industry. Click here for the additional POWR Ratings for Growth, Value, Sentiment and Momentum for NRILY.
Science Applications International Corporation (SAIC)
SAIC provides technical, engineering, and enterprise information technology services. The company serves the U.S. military and various intelligence community agencies, as well as U.S. federal civilian agencies.
SAIC’s forward EV/Sales of 1.21x is 32.7% lower than the industry average of 1.79x. Its forward Price/Sales of 0.92x is 35.8% lower than the industry average of 1.44x.
SAIC’s trailing-12-month ROCE of 29.14% is 136.6% higher than the 12.32% industry average. Its trailing-12-month asset turnover ratio of 1.36x is 68.9% higher than the 0.81x industry average.
For the third quarter that ended November 3, 2023, SAIC’s revenues came in at $1.90 billion. Its adjusted operating earnings increased 7.5% from the year-ago value to $143 million. Also, its adjusted EBITDA and adjusted EPS came in at $178 million and $2.27, up 5.4% and 19.5% year-over-year, respectively.
Street expects SAIC’s revenue to increase marginally year-over-year to $7.36 billion for the fiscal year ending January 2025. Its EPS is expected to grow 2.8% year-over-year to $8.11 for the same period. It surpassed EPS estimates in all the four trailing quarters. Shares of SAIC have gained 27.8% over past nine months to close the last trading session at $130.41.
SAIC’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
SAIC has a B grade for Value and Sentiment. It ranks #7 out of 75 stocks in the Technology - Services industry. Click here to access additional SAIC ratings (Growth, Stability, Momentum and Quality).
AUO Corporation (AUOTY)
Headquartered in Hsinchu City, Taiwan, AUOTY researches, develops, produces, and sells thin film transistor liquid crystal displays (TFT-LCDs) and other flat panel displays for various applications. It operates through two segments: Display and Energy.
AUOTY’s forward EV/Sales of 0.75x is 74.3% lower than the industry average of 2.93x. Its forward Price/Sales of 0.59x is 79.9% lower than the industry average of 2.93x.
AUOTY’s trailing-12-month CAPEX / Sales of 12.83% is 437.5% higher than the industry average of 2.39%.
For the fiscal third quarter that ended September 30, 2023, AUOTY’s revenue increased 39.8% year-over-year to NT$70.71 billion ($2.26 billion). As of September 30, 2023, its total current assets stood at NT$146.24 billion ($4.67 billion), compared to NT$140.18 billion ($4.48 billion) as of December 31, 2022.
Also, its total assets stood at NT$388.98 billion ($12.43 billion), compared to NT$386.84 billion ($12.36 billion) for the same period.
Analysts expect AUOTY’s revenue to come in at $8.42 billion for the year ending December 2024, increased 6.9% year-over-year. Its EPS is expected to grow at 41.6% for the same period. The stock has gained 26% over the past three months to close the last trading session at $5.96.
AOUTY has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth and Momentum. It is ranked #6 out of 41 stocks in the B-rated Technology - Electronics industry.
Beyond what is stated above, we’ve also rated AUOTY for Value, Stability, Sentiment and Quality. Get all AUOTY ratings here.
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NRILY shares were unchanged in premarket trading Wednesday. Year-to-date, NRILY has gained 1.51%, versus a 3.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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