Despite facing multiple macroeconomic headwinds over the past two years and concerns about a looming recession now weighing heavily on investors’ sentiments, the tech sector could rake in significant profits in the long term. To that end, investors could benefit from fundamentally strong and profitable stocks Cognizant Technology Solutions Corporation (CTSH), Pure Storage, Inc. (PSTG), and The Hackett Group, Inc. (HCKT).
IT services leverage technical and business expertise to help organizations create, manage, and optimize information and business processes. Data-driven analysis, supported by technology, is driving strategic decisions globally. Moreover, the amount of data generated worldwide is rapidly increasing. Therefore, it is essential for companies to embrace advanced technologies to remain competitive within the industry.
According to Statista, IT outsourcing dominates the IT market, with a projected market volume of $460.10 billion in 2023. Revenue in the IT services market is expected to show an annual growth rate (CAGR) of 7.4%, resulting in a market volume of $1.77 trillion by 2028.
In addition, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 41.6% returns year-to-date.
Given these factors, investors could look out for the featured tech stocks. Let’s take a closer look at their fundamentals.
Cognizant Technology Solutions Corporation (CTSH)
CTSH provides consulting and technology, and outsourcing services in North America, Europe, and worldwide. It operates through four segments: Financial Services; Health Sciences; Products and Resources; and Communications, Media, and Technology.
On June 28, 2023, CTSH and ServiceNow (NOW) announced a strategic partnership to advance the adoption of AI-driven automation across industries. The expanded alliance is expected to help accelerate the path toward building a $1 billion combined business for CTSH and NOW.
Cognizant’s ServiceNow Business Group will help joint clients challenged by rising costs, growing tech debt, manual processes and sub-optimal customer experiences deploy AI to help drive improvements in three key areas: enriched operational effectiveness, enhanced experience and expedited innovation.
In terms of the trailing-12-month Return on Total Assets, CTSH’s 12.71% is significantly higher than the 0.06% industry average. Likewise, its 18.73% trailing-12-month Return on Common Equity is considerably higher than the 0.63% industry average. Its 11.88% trailing-12-month net income margin is 490.9% higher than the industry average of 2.01%.
CTSH’s revenue for the fiscal first quarter ended March 31, 2023, came in at $4.81 billion. Its net income increased 3% year-over-year to $580 million. Additionally, its adjusted EPS came in at $1.11, representing an increase of 2.8% over the prior-year quarter.
Analysts expect CTSH’s EPS and revenue for the quarter ending December 31, 2023, to increase 5.9% and 1.6% year-over-year to $1.07 and $4.92 billion, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. CTSH has gained 16.8% year-to-date to close the last trading session at $66.81.
CTSH’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 of 9 stocks in the Outsourcing - Tech Services industry. Moreover, it has an A grade for Quality and a B grade for Value. To access the other ratings of CTSH for Growth, Momentum, Stability, and Sentiment, click here.
Pure Storage, Inc. (PSTG)
PSTG provides data storage technologies, products, and services in the United States and internationally. The company’s Purity software is shared across its products and provides enterprise-class data services, such as data reduction, data protection, and encryption, as well as storage protocols, including block, file, and object.
In terms of the trailing-12-month return on total assets, PSTG’s 0.58% is 802.8% higher than the 0.06% industry average. Its 2.11% trailing-12-month Return on Common Equity is 236.4% higher than the industry average of 0.63%. Furthermore, the stock’s 6.49% trailing-12-month CAPEX/Sales is 175.3% higher than the industry average of 2.36%.
PSTG’s total revenue for the fiscal first quarter ended May 31, 2023, came in at $589 million. The company’s non-GAAP gross profit came in at $425.50 million. Its non-GAAP operating income came in at $19.60 million.
PSTG’s EPS and revenue for the quarter ending October 31, 2023, are expected to increase 25.1% and 12% year-over-year to $0.39 and $757.36 million, respectively. It has a commendable earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 59.2% to close the last trading session at $37.07
It is ranked first in the Technology - Storage industry. In addition, it has an A grade for Quality. Click here to see additional ratings of PSTG for Growth, Value, Momentum, Stability, and Sentiment.
The Hackett Group, Inc. (HCKT)
HCKT operates as a strategic advisory and technology consulting firm primarily in the United States, Europe, and internationally. The company operates through three segments: Global Strategy & Business Transformation; Oracle Solutions; and SAP Solutions.
In terms of the trailing-12-month return on total assets, HCKT’s 21.65% is significantly higher than the 0.06% industry average. Likewise, its 35.98% trailing-12-month return on common equity is much higher than the industry average of 0.63%. Its 25.48% trailing-12-month return on total capital is considerably higher than the industry average of 1.78%.
For the fiscal first quarter that ended March 31, 2023, HCKT’s total revenue came in at $71.23 million. The company’s net income came in at $8.16 million. Its operating income came in at $11.25 million. Additionally, its adjusted net EPS came in at $0.37.
Analysts expect HCKT’s EPS and revenue for the quarter ending December 31, 2023, to increase 12.0% and 4.5% year-over-year to $0.40 and $73.29 million, respectively. It has a credible earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 23.5% to close the last trading session at $23.15.
HCKT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked first in the Outsourcing - Tech Services industry. It has a B grade for Stability and Quality.
We have also given HCKT grades for Growth, Value, Momentum, and Sentiment. Get all HCKT ratings here.
What To Do Next?
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CTSH shares were trading at $67.43 per share on Monday morning, up $0.62 (+0.93%). Year-to-date, CTSH has gained 18.97%, versus a 19.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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