The tech industry has been constantly evolving to meet the escalating demand for groundbreaking and inventive solutions. The industry is also enjoying significant interest from investors, evidenced by the Technology Select Sector SPDR Fund’s (XLK) 18.2% gains over the past three months, outpacing the 11.2% gains of the broader S&P 500 index.
Against the backdrop, in this piece, I have highlighted the fundamentals of three fundamentally sound tech stocks, Dropbox, Inc. (DBX), Materialise NV (MTLS), and AstroNova, Inc. (ALOT), which could be solid year-end buys.
The expanding dependence of businesses on technology has generated a profitable market for IT service providers, with the pandemic contributing positively. The abrupt transition to remote work has stimulated a strong demand for IT solutions, leading to heightened requirements for tools and infrastructure. The global market for IT services is anticipated to demonstrate a strong CAGR of 9.7% from 2023 to 2030.
On top of it, Artificial Intelligence (AI) has emerged as the most widely discussed technological breakthrough this year, with companies worldwide fervently capitalizing on its potential. U.S. technology behemoths saw an increase of a staggering $2.40 trillion in their market caps this year, marked by heightened excitement surrounding generative AI.
Projections from Gartner, Inc. suggest that global IT spending is set to reach $5.10 trillion in 2024, reflecting an 8% rise from the previous year. Although the influence of generative AI on IT spending is currently modest, the broader investments in AI are significantly contributing to the overall expansion of IT expenditures.
As businesses embrace digital transformation, the need for robust and scalable hardware infrastructure to manage growing data, ensure seamless connectivity, and support software applications is rising. The IT hardware market is expected to grow from $121.32 billion in 2023 to $177.11 billion by 2028, with a CAGR of 7.9% during this period.
Meanwhile, the projected value of the global 3D printing market is $105.99 billion by 2030, showcasing a remarkable CAGR of 24.9% from 2023 to 2030. The substantial surge in digitization, combined with the widespread embrace of advanced technologies like Industry 4.0, smart factories, robotics, and machine learning, is anticipated to fuel the demand for online 3D printing.
Considering the solid growth projections across various verticals of the tech industry, adopting a bullish stance on DBX, MTLS, and ALOT could be beneficial. That said, let’s dig deeper into the fundamentals of these stocks for a better perspective.
Dropbox, Inc. (DBX)
DBX provides a content collaboration platform worldwide. The company's platform allows individuals, families, teams, and organizations to collaborate and sign up for free through its website or app, as well as upgrade to a paid subscription plan for premium features.
On November 17, DBX and NVIDIA Corporation (NVDA) entered into a partnership aimed at enhancing knowledge work and boosting productivity for millions of DBX users by leveraging the capabilities of artificial intelligence.
Through this collaboration, DBX intends to enhance its existing AI capabilities by incorporating personalized generative AI for improved search accuracy, enhanced organization, and simplified workflows. The objective is to bring advantages to DBX customers by improving their experience with cloud-based content.
DBX’s trailing-12-month asset turnover ratio of 0.86x is 39.7% higher than the industry average of 0.62x. Likewise, its trailing-12-month net income margin of 22.50% is 858% higher than the industry average of 2.35%. Furthermore, the stock’s trailing-12-month levered FCF margin of 30.52% is 257.8% higher than the industry average of 8.53%.
DBX’s revenue for the fiscal third quarter (ended September 30, 2023) increased 7.1% year-over-year to $633 million. Its gross profit improved 6.7% from the year-ago value to $513.40 million.
The company’s net income and net income per share rose 37.1% and 43.5% from the prior-year quarter to $114.10 million and $0.33, respectively. Additionally, its income from operations came in at $130.70 million, up 46.4% year-over-year.
The consensus revenue estimate of $631.03 million for the fourth quarter (ending December 2023) represents a 5.4% year-over-year improvement. While the consensus EPS estimate of $0.48 for the same period reflects a 20.9% year-over-year increase.
Moreover, the company has an excellent surprise history, surpassing the EPS and revenue estimates in each of the trailing four quarters.
The stock has soared 41.8% over the past nine months to close the last trading session at $29.72.
DBX’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Value and Momentum. In the 75-stock Technology - Services industry, it is ranked #3. Click here to see DBX ratings for Growth, Stability, and Sentiment.
Materialise NV (MTLS)
Headquartered in Leuven, Belgium, MTLS provides additive manufacturing and, medical software, and 3D printing services in the Americas, Europe and, Africa, and the Asia-Pacific. The company operates through three segments: Materialise Software; Materialise Medical; and Materialise Manufacturing.
On November 8, MTLS and Nikon SLM announced a collaborative initiative to develop the next generation of MTLS Build Processors (BPs) specifically designed for Nikon SLM Solutions printers. These BPs will seamlessly integrate with the MTLS’ CO-AM platform.
As the manufacturing industry increasingly adopts metal Additive Manufacturing (AM) for end-use components, the demand for improved part quality, cost competitiveness, and rapid production is critical. This partnership aims to provide manufacturers with the appropriate machinery and the flexibility to tailor their 3D printing processes accordingly.
In the same month, MTLS formed a strategic partnership with HP Inc. (HPQ), a global technology leader known for solutions in personal computing, printing, and 3D printing. The collaboration aims to integrate HPQ's Multi Jet Fusion and Metal Jet AM technology into the MTLS’ CO-AM software platform.
This integration will empower manufacturing companies to enhance the efficiency and quality of their 3D printing processes, aligning with industrial standards. The goal is to enable volume production of end parts using 3D printing technology.
The stock’s trailing-12-month Return On Total Assets (ROTA) of 0.68% is 156.6% higher than the industry average of 0.26%. Likewise, its trailing-12-month CAPEX/Sales of 4.89% is 108.2% higher than the industry average of 2.35%. Furthermore, MTLS’ trailing-12-month gross profit margin of 56.51% is 15% higher than the industry average of 49.14%.
In the fiscal third quarter that ended September 30, 2023, MTLS’ revenue increased 3.2% year-over-year to €60.13 million ($63.70 million), while its gross profit rose 5.2% from the prior-year quarter to €33.70 million ($35.70 million).
The company’s net profit for the period improved 184% from the year-ago value to €4.01 million ($4.25 million). Also, its adjusted EBITDA came in at €7.86 million ($8.57 million), up 54.9% from the prior-year quarter.
Street expects MTLS’ revenue for the fiscal fourth quarter (ending December 2023) to increase 4.9% year-over-year to $70.63 million, while its EPS for the same quarter is expected to come in at $0.06. Furthermore, the company’s EPS is projected to improve by 63.1% per annum over the next five years.
Over the past three months, MTLS’ shares have soared 24.2% to close the last trading session at $6.73.
MTLS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth, Value, and Sentiment. Within the five-stock A-rated Technology - 3D Printing industry, it is ranked #1. Click here to see the other ratings of MTLS for Momentum, Stability, and Quality.
AstroNova, Inc. (ALOT)
ALOT designs, develops, manufactures, and distributes specialty printers and data acquisition and analysis systems, including hardware and software, which incorporate advanced technologies to acquire, store, analyze, and present data in multiple formats. The company operates in two segments: Product Identification (PI); and Test & Measurement (T&M).
On August 1, ALOT disclosed the execution of a strategic realignment within its PI segment. This realignment is crafted to optimize the cost structure and boost operational efficiencies within the segment, leveraging the synergies gained from the acquisition of Astro Machine, Inc., a subsidiary acquired by the company in August 2022.
ALOT’s trailing-12-month asset turnover ratio of 1.08x is 75.2% higher than the industry average of 0.62x. Likewise, its trailing-12-month EBIT margin of 6.96% is 41.4% higher than the industry average of 4.92%. Furthermore, the stock’s trailing-12-month levered FCF margin of 18.65% is 118.6% higher than the industry average of 8.53%.
For the fiscal 2024 third quarter, which ended on October 28, 2023, ALOT’s net revenue amounted to $37.55 million, while its gross profit grew 18.4% from the year-ago value to $14.78 million.
Moreover, the company’s non-GAAP net income and non-GAAP EPS amounted to $2.75 million and $0.37, up 231.9% and 825% from the year-ago value, respectively. Also, its non-GAAP operating income improved 123.8% year-over-year to $4.62 million.
ALOT’s shares have surged 34.3% over the past three months to close the last trading session at $16.26.
It’s no surprise that ALOT has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Stability, and Sentiment. Out of 37 stocks in the A-rated Technology - Hardware industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have ALOT’s ratings for Momentum and Quality. Get all ALOT ratings here.
What To Do Next?
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DBX shares were trading at $29.56 per share on Friday afternoon, down $0.16 (-0.54%). Year-to-date, DBX has gained 32.08%, versus a 25.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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