The tech sector has faced severe challenges since last year due to various macroeconomic challenges. However, the sector will likely witness a turnaround, with inflation easing considerably and the interest rate hikes potentially nearing an end. Moreover, the rapid digitization and rising adoption of emerging technologies like AI (Artificial Intelligence) and IoT (Internet of Things) should drive the industry’s prospects.
Given this backdrop, it could be wise to buy fundamentally strong tech stocks Canon Inc. (CAJPY), AstroNova, Inc. (ALOT), and TransAct Technologies Incorporated (TACT).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the technology hardware industry is well-positioned for growth.
Last year, the demand for hardware slowed down, as was evident from the 16.2% decline in worldwide PC shipments. The struggles continued in the first quarter of fiscal 2023, with worldwide PC shipments falling 30% year-over-year.
However, the demand for specialized and quality hardware will likely remain robust in the near term thanks to increasing reliance on digital devices and the growing adoption of emerging technologies like AI, IoT, and virtual reality (VR).
According to Gartner, worldwide IT spending is projected to rise 5.5% year-over-year to $4.6 trillion this year. The computer hardware market is expected to grow at a CAGR of 6.6% to $909.80 billion in 2027.
Let’s take a closer look at the fundamentals of the featured stocks.
Canon Inc. (CAJPY)
Headquartered in Tokyo, Japan, CAJ manufactures and sells office multifunction devices, plain paper copying machines, laser and inkjet printers, cameras, diagnostic equipment, and lithography equipment. The company operates through four segments: Printing Business Unit, Imaging Business Unit, Medical Business Unit, and Industrial and Others Business Unit.
On March 23, 2023, CAJPY announced that it signed an agreement to purchase the assets and technology for the mass production of cells for use in treatment and other clinical applications owned by Kyoto Seisakusho Co., Ltd. The transfer of assets will enable CAJPY to accelerate the creation of technologies for regenerative medicine and strengthen its presence in Bio-science.
In terms of the trailing-12-month net income margin, CAJPY’s 6.17% is 260.3% higher than the 1.71% industry average. Likewise, its 14.78% trailing-12-month EBITDA margin is 75.1% higher than the industry average of 8.44%. Furthermore, the stock’s 9.33% trailing-12-month EBIT margin is 124.5% higher than the industry average of 4.16%.
CAJPY’s net sales for the first quarter ended March 31, 2023, increased 10.4% year-over-year to ¥971.13 billion ($6.72 billion). Its operating profit rose 10.9% over the prior-year quarter to ¥84.48 billion ($584.54 million). The company’s net income attributable to CAJPY increased 22.7% year-over-year to ¥56.41 billion ($390.32 million). In addition, its EPS came in at ¥55.53, representing an increase of 26.3% year-over-year.
Analysts expect CAJPY’s revenue for the quarter ending September 30, 2023, to increase 7% year-over-year to $7.28 billion. The stock has gained 21.2% year-to-date to close the last trading session at $26.27.
CAJPY’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 42 stocks in the Technology - Hardware industry. In addition, it has an A grade for Quality and a B for Value. Click here to see the other ratings of CAJPY for Growth, Momentum, Stability, and Sentiment.
AstroNova, Inc. (ALOT)
ALOT develops, manufactures, and markets a broad range of specialty printers and data acquisition and analysis systems. Its segments include Test and Measurement (T&M) and Product Identification (PI).
In terms of the trailing-12-month EBIT margin, ALOT’s 4.66% is 12% higher than the 4.16% industry average. Likewise, its 2.10% trailing-12-month net income margin is 22.6% higher than the industry average of 1.71%. Furthermore, the stock’s 1.16x trailing-12-month asset turnover ratio is 90.4% higher than the industry average of 0.61x.
For the fiscal first quarter ended April 29, 2023, ALOT’s net revenue increased 14.2% year-over-year to $35.42 million. Its adjusted EBITDA rose 59.9% over the prior-year quarter to $3.05 million. The company’s net income increased 99.5% year-over-year to $848 thousand. In addition, its EPS came in at $0.11, representing an increase of 83.3% year-over-year.
Over the past nine months, the stock has gained 19.7% to close the last trading session at $14.03.
ALOT’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has a B grade for Growth, Value, Stability, and Sentiment. To see the other ratings of ALOT for Momentum and Quality, click here.
TransAct Technologies Incorporated (TACT)
TACT designs, develops, and markets transaction-based and specialty printers and terminals worldwide. It offers thermal printers and terminals to generate labels, coupons, and transaction records, such as receipts, tickets, and other documents, as well as printed logging and data plotting.
On May 2, 2023, TACT announced the launch of its all-new BOHA! Terminal 2 food safety and FDA-compliant grab ‘n go labeling solution. The BOHA! Terminal 2 improves on the original BOHA! Terminal with more speed, print resolution, label widths, screen brightness and sensitivity, and flexibility.
In terms of the trailing-12-month Return on Common Equity, TACT’s 4.29% is significantly higher than the 0.23% industry average. Likewise, its 2.19% trailing-12-month net income margin is 28.1% higher than the industry average of 1.71%. Furthermore, the stock’s 1.44x trailing-12-month asset turnover ratio is 137.1% higher than the industry average of 0.61x.
TACT’s net sales for the first quarter ended March 31, 2023, rose 129.5% year-over-year to $22.27 million. Its gross profit increased 377.6% over the prior-year quarter to $12.26 million. The company’s adjusted EBITDA came in at $4.46 million, compared to an adjusted EBITDA loss of $5.12 million in the year-ago quarter.
In addition, its net income came in at $3.14 million, compared to a net loss of $4.35 million in the prior-year quarter. Also, its EPS came in at $0.31, compared to a loss per share of $0.44 in the year-ago quarter.
Street expects TACT’s EPS and revenue for the quarter ended June 30, 2023, to increase 125% and 46.3% year-over-year to $0.06 and $18.47 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 136.1% to close the last trading session at $8.93.
TACT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
Within the Technology – Hardware industry, it is ranked #5. It has an A grade for Sentiment and a B for Growth and Value. Click here to see the additional ratings of TACT for Momentum, Stability, and Quality.
What To Do Next?
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CAJPY shares were unchanged in premarket trading Thursday. Year-to-date, CAJPY has gained 21.17%, versus a 15.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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