Businesses across several industries increasingly adopt software applications to streamline operations, improve customer experience, and gain a competitive edge. Further, with the proliferation of cloud computing, the shift to remote work spurred by the COVID-19 pandemic, and the emergence of new technologies, the demand for advanced tech solutions is growing rapidly.
Therefore, it could be wise to invest in high PE tech stocks Adobe Inc. (ADBE), Intuit Inc. (INTU), and Motorola Solutions, Inc. (MSI) that justify their premium valuation due to sound fundamentals and growth prospects.
Gartner predicts worldwide IT spending to total $5.06 trillion in 2024, representing an increase of 8% from the previous year. This projection puts global IT spending on track to exceed $8 trillion well before the decade’s end. Growing generative AI initiatives will help drive the spending this year and beyond.
Moreover, revenue in the software market is projected to reach $698.80 billion in 2024, and in global comparison, most revenue is anticipated to be generated in the U.S. with $353.50 billion. The market is further expected to grow at a CAGR of 5.3% during the forecast period (2024-2028), resulting in $858.10 billion by 2028.
Besides, the enterprise communication infrastructure market is expected to register a CAGR of 17.5% during the forecast period (2024-2029). The growing need for upgraded IT communication infrastructure and enterprise investments in the continuous evolution and application of new technologies will drive market growth.
Moreover, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 31.9% returns over the past year.
While several tech stocks trade at high PE ratios, investors are willing to pay a premium for these stocks because they expect the companies to grow and generate substantial profits in the future. Such high-PE tech stocks have the potential for significant returns due to their solid growth prospects, market leadership positions, and highly scalable business models.
However, it’s crucial for investors to carefully assess the underlying fundamentals, market conditions, and potential risks associated with these stocks before making investment decisions.
Given this backdrop, let’s delve deeper into the fundamentals of top tech stocks ADBE, INTU, and MSI with elevated PE ratios, justifying their premium valuation due to promising growth prospects, market dominance, and innovative prowess.
Adobe Inc. (ADBE)
ADBE operates as a diversified software company worldwide. It operates through three segments: Digital Media; Digital Experience; and Publishing and Advertising. The company offers products, services, and solutions that allow individuals, teams, and enterprises to create, publish, and promote content.
In terms of forward non-GAAP P/E, ADBE is trading at 25.83x, 9.1% higher than the industry average of 23.68x. Likewise, the stock’s forward Price/Sales multiple of 9.71 is 238% higher than the industry average of 2.87. ADBE is considered relatively expensive compared to its peers, but solid fundamentals, growth trajectory, and competitive advantages justify its valuation.
On June 6, ADBE’s Adobe Experience Platform (AEP) was made available. The new offering enhances the productivity of experienced practitioners through generative AI and democratizes access to enterprise applications by bringing more individuals into content production and insights workflows.
The AEP AI Assistant offers product expertise, content generation and automation, and predictive insights and recommendations and will help harness data to deliver insights and automation.
On May 21, ADBE launched generative remove in Adobe Lightroom, bringing the magic of Adobe Firefly directly into everyday photo editing workflows across Lightroom mobile, web, and desktop surfaces. It adds AI-powered innovations, including Lens Blur, to add aesthetic blur effects in a single click, making photo editing faster and easier for photographers.
The launch bodes well with ADBE, and its streamlined Lightroom mobile user interface makes it fun, easy, and intuitive for all photographers, from hobbyists to pros, to create amazing photos.
ADBE’s total revenues increased 11.3% year-over-year to $5.18 billion for the first quarter that ended March 1, 2024. The company’s gross profit grew 12.3% from the year-ago value to $4.59 billion. The non-GAAP operating income of $2.47 billion indicates growth of 15.8% from the prior year’s quarter.
In addition, its non-GAAP net income came in at $2.05 billion, or $4.48 per share, up 17.2% and 17.9% year-over-year, respectively. The company’s cash and cash equivalents and total assets were $6.25 billion and $28.75 billion as of March 1, 2024.
As per the company’s outlook for the second quarter of 2024, ADBE’s total revenue is expected to be $5.25 billion to $5.30 billion. The company’s digital media segment revenue is expected to range from $3.87 billion to $3.90 billion. Its non-GAAP EPS is projected to be between $4.35 and $4.40.
Street expects ADBE’s revenue and EPS for the second quarter (ended May 2024) to increase 9.8% and 12.3% year-over-year to $5.29 billion and $4.39, respectively. Further, the company has surpassed the consensus revenue and EPS estimates in all of the trailing four quarters.
Shares of ADBE have surged 11.3% over the past year to close the last trading session at $465.43.
ADBE’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality. Within the Software - Application industry, ADBE is ranked #39 out of 135 stocks.
Click here to access additional ratings of ADBE for Growth, Value, Momentum, Stability, and Sentiment.
Intuit Inc. (INTU)
INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals internationally. The company operates through four segments: Small Business & Self-Employed; Consumer; Credit Karma; and ProTax.
In terms of forward non-GAAP P/E, INTU is trading at 34.10x, 44% higher than the industry average of 23.68x. Also, its forward EV/Sales of 10.02x is 245.6% higher than the industry average of 2.90x. If Intuit’s growth prospects are strong, investors may be willing to pay a premium for the stock despite its high valuation multiples.
On May 21, INTU entered a new integration with CallRail, the AI-powered lead intelligence platform. The partnership will enable mutual CallRail and Mailchimp customers to bridge the gap between online and offline channels by offering prompt, customized customer engagement based on lead attributes and AI-identified conversation insights.
For the third quarter that ended April 30, 2024, INTU’s total net revenue increased 11.9% year-over-year to $6.74 billion. Its non-GAAP operating income grew 10.5% from the year-ago value to $3.71 billion. The company’s non-GAAP net income came in at $2.80 billion and $8.92, up 11.1% and 10.8% from the prior year’s quarter, respectively.
In addition, the company’s cash and cash equivalents stood at $4.21 billion as of April 30, 2024, compared to $2.85 billion as of July 31, 2023.
According to the fourth-quarter 2024 guidance, INTU expects revenue of $3.06 billion to $3.10 billion, a growth of nearly 13-14%. Its operating income is expected to be between $688 million and $708 million. Also, the company’s net income per share is expected to range from $1.80 to $1.85.
Intuit further increased its guidance for the full year 2024. The company expects revenue of $16.16 billion - $16.20 billion, up nearly 13% and compared to the prior guidance for growth of 11-12%. Its non-GAAP operating income is expected between $6.36 billion and $6.38 million, up from the previous guidance of growth of 12-14%.
Also, INTU’s non-GAAP earnings per share are expected to be $16.79 - $16.84, a growth of nearly 17%, compared to the prior guidance of 12 to 14% growth.
Analysts expect INTU’s revenue and EPS for the second quarter (ending July 2024) to increase 13.8% and 12.7% year-over-year to $3.09 billion and $1.86, respectively. Moreover, the company has topped the consensus EPS estimates in each of the trailing four quarters.
INTU’s shares have gained 35.9% over the past year to close the last trading session at $573.90.
INTU’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Sentiment and Growth. Within the Software - Application industry, INTU is ranked #24 among 135 stocks.
In addition to the POWR Ratings we’ve stated above, we also have INTU ratings for Momentum, Value, and Stability. Get all INTU ratings here.
Motorola Solutions, Inc. (MSI)
MSI offers public safety and enterprise security solutions internationally. It operates in two segments: Products and Systems Integration; and Software and Services. The company provides a portfolio of infrastructure, devices, accessories, and video security devices and infrastructure.
In terms of forward non-GAAP P/E, MSI is trading at 28.37x, 19.8% higher than the industry average of 23.68x. Similarly, the stock’s forward EV/EBITDA of 20.27x is 38.4% higher than the industry average of 14.65x. In addition to valuation metrics, assessing MSI’s growth prospects is crucial.
On June 6, MSI announced that Police Scotland will deploy 10,500 VB400 body cameras to police officers across the country. The police service cites the £13.30 million ($16 million) investment as a significant step in enhancing transparency, accountability, and public safety.
On May 23, MSI announced that its Avigilon Unity on-premise video security suite was added to the Department of Defense’s Information Network Approved Products List. This certified that it meets the agency’s highest standards for data security and interoperability excellence. The suite offers advanced video security solutions to help safeguard essential assets and military personnel.
MSI’s net sales for the first quarter that ended March 30, 2024, increased 10% from the prior year’s quarter to $2.39 billion. Its operating earnings grew 30.1% from the year-ago value to $519 million. Non-GAAP net earnings attributable to MSI came in at $482 million and $2.81 per share, up 25.5% and 26.6% from the prior year’s quarter, respectively.
Analysts expect MSI’s EPS for the second quarter (ending June 2024) to increase 13.5% year-over-year to $3.01, and its revenue is estimated to grow 7.6% year-over-year to $2.59 billion for the current quarter. Moreover, the company surpassed the consensus revenue and EPS estimates in all of the trailing four quarters, which is impressive.
MSI’s stock has surged 14.7% over the past six months and 32.1% over the past year to close the last trading session at $371.06.
MSI’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
MSI has a B grade for Stability, Sentiment, and Quality. It is ranked #10 among the 45 stocks in the Technology – Communication/Networking industry.
Click here to access additional MSI ratings for Growth, Momentum, and Value.
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ADBE shares fell $7.25 (-1.56%) in premarket trading Monday. Year-to-date, ADBE has declined -23.20%, versus a 12.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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