Demand for tech services is projected to stay robust as enterprises continue to invest significantly in digitizing their operations and adopting emerging technologies. So, investors interested in investing in quality tech service stocks can consider buying LiveRamp Holdings, Inc. (RAMP), NetScout Systems, Inc. (NTCT), and GigaCloud Technology, Inc. (GCT).
According to Gartner, IT spending this year is forecasted to increase 4.3% year-over-year to $4.70 trillion.
The digital transformation market is expected to increase at a CAGR of 24.1% to $3.15 trillion by 2030. Digital tools transform business processes, increase revenue, improve customer interaction, empower employees, streamline workflows, and optimize product offerings.
Moreover, the US IT services market is estimated to reach $306.10 billion by 2028, increasing at a CAGR of 7.1%. The rise in demand might be attributed to the growing demand for digital transformation in various industries. Also, technological breakthroughs such as cloud computing and artificial intelligence are projected to propel the industry even further.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 9.9% returns over the past three months and 23.4% over the past six months.
Take a detailed look at the stocks mentioned above:
LiveRamp Holdings, Inc. (RAMP)
RAMP is a global technology company that provides an enterprise platform for data collaboration. It enables secure and privacy-conscious sharing of first-party consumer data between companies and their business partners. RAMP’s solutions encompass data collaboration, activation, measurement and analytics, identity, and data marketplace.
RAMP’s forward EV/Sales multiple of 2.63 is 4.7% lower than the industry average of 2.76. Its forward EV/EBIT multiple of 17.84 is 2.1% lower than the industry average of 18.22.
RAMP’s trailing-12-month levered FCF margin of 22% is 220.4% higher than the industry average of 6.87%. Its trailing-12-month gross profit margin of 71.29x is 46.5% higher than the industry average of 48.66x.
For the fiscal first quarter that ended June 30, 2023, RAMP’s revenues increased 8.3% year-over-year to $154.07 million. Its gross profit was 7.1% year-over-year to $108.45 million. The company’s adjusted EBITDA rose 323.1% from the prior year’s period to $21.59 million.
Furthermore, the company’s non-GAAP net earnings from continuing operations and EPS stood at $19.53 million and $0.29, up 463.2% and 480% year-over-year, respectively.
The consensus revenue estimate of $625.07 million for the year ending March 2024 represents a 4.8% increase year-over-year. Its EPS is expected to grow 34.8% year-over-year to $1.16 for the same period. It surpassed EPS estimates in all four trailing quarters. RAMP’s shares have gained 49.3% over the past nine months to close the last trading session at $31.69.
RAMP’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, translating to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RAMP has a B grade for Growth, Value, Sentiment and Quality. It is ranked #6 out of 76 stocks in the Technology - Services industry. Click here for the additional POWR Ratings for Momentum, and Sentiment for RAMP.
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 detects threats in real-time using highly scalable deep packet inspection (DPI) and multiple threat detection methods at the source of packet capture and allows historical investigation of high-fidelity network metadata and packets.
NTCT’s forward EV/Sales multiple of 1.95 is 29.5% lower than the industry average of 2.76. Its forward non-GAAP P/E multiple of 12.40 is 46.8% lower than the industry average of 23.30.
NTCT’s trailing-12-month gross profit margin of 76.47% is 57.2% higher than the 48.66% industry average. Its trailing-12-month EBITDA margin of 18.14% is 100.8% higher than the 9.04% industry average.
During the fiscal first quarter that ended June 30, 2023, NTCT’s total revenue increased marginally year-over-year to $211.14 million. Its gross profit increased 6.4% year-over-year to $160.74 million and total service revenue increased 5.4% year-over-year to $116.48 million.
In addition, its non-GAAP net income amounted to $22.71 million and $0.31 per share, representing increases of 25.8% and 29.2% from the prior-year quarter, respectively.
Street expects NTCT’s revenue to increase marginally year-over-year to $922.50 million for the year ending March 2024. Its EPS is expected to grow 3.9% year-over-year to $2.27 for the same period. It surpassed EPS estimates in all four trailing quarters. NTCT’s shares have lost marginally intraday to close the last trading session at $28.09.
NTCT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Value and a B for Growth and Quality. To see additional NTCT’s ratings for Stability, Momentum and Sentiment, click here.
GigaCloud Technology Inc. (GCT)
GCT pioneers global end-to-end B2B e-commerce solutions for large parcel merchandise. Its marketplace seamlessly connects manufacturers primarily in Asia with resellers in the United States, Asia, and Europe to execute cross-border transactions across furniture, home appliance, fitness equipment, and other large parcel categories.
GCT’s forward EV/Sales multiple of 0.78 is 33% lower than the industry average of 1.17. Its forward EV/EBIT multiple of 5.74 is 57.9% lower than the industry average of 13.62.
GCT’s trailing-12-month net income margin of 8.88% is 112.2% higher than the 4.19% industry average. Its trailing-12-month levered FCF margin of 15.91% is 227% higher than the 4.86% industry average.
GCT’s total revenue for the fiscal second quarter ended June 30, 2023, rose 13.9% year-over-year to $153.13 million. The company’s net income increased 201.5% year-over-year to $18.39 million.
Additionally, its net income per ordinary share increased 200% year-over-year to $0.45. Its adjusted EBITDA increased 219.3% year-over-year to $24.87 million.
Analysts expect GCT’s revenue to increase 22.5% year-over-year to $600.54 million for the year ending December 2023. Its EPS is expected to grow 158.3% year-over-year to $1.55 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 150.7% over the past six months to close the last trading session at $12.66.
It’s no surprise that GCT has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Sentiment and Quality and a B for Growth and Value. It is ranked #4 in the same industry.
Beyond what is stated above, we’ve also rated GCT for Momentum and Stability. Get all GCT ratings here.
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RAMP shares were trading at $31.31 per share on Thursday morning, down $0.38 (-1.20%). Year-to-date, RAMP has gained 33.58%, versus a 16.10% 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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