Widespread digitization and cloud solution adoption have bolstered growth in the tech industry. So, I think investors could consider buying quality tech stocks Key Tronic Corporation (KTCC), Zoom (ZM) and LiveRamp Holdings, Inc. (RAMP) for the next month.
The pandemic underscored the importance of digitization in business operations, leading to increased demand for IT services, particularly for business continuity and resilience.
The tech industry is also thriving as companies worldwide increasingly prioritize digital transformation, leveraging advanced technologies to boost growth and reduce costs. Moreover, the shift to remote work has increased the demand for services related to collaboration tools, communication platforms, and cybersecurity for remote employees.
As a result, the revenue in the global IT Services market is expected to reach $1.24 trillion in 2023.
Looking ahead, the U.S. IT services market is projected to experience steady growth from 2023 to 2028, with a total increase of $174.2 billion (38.3%). It is expected to reach a new peak of $628.84 billion in 2028 after eight consecutive years of growth.
Furthermore, cloud services are gaining popularity in developing nations as businesses seek to enhance their digital operations. Increased government efforts to safeguard data integrity and security further drive this trend. Also, large businesses are rapidly adopting cloud services due to on-demand availability.
Thus, the global cloud computing market is expected to expand at a CAGR of 14.1% from 2023 to 2030.
Considering these conducive trends, let’s look at the fundamentals of the three best Technology - Services stocks, starting with number 3.
Stock #3: Key Tronic Corporation (KTCC)
KTCC provides electronic manufacturing services (EMS) for original equipment manufacturers (OEMs). It offers a range of services, such as product design, engineering, assembly, sourcing, logistics, and testing. Additionally, it produces and markets keyboards and input devices through distributors and field salesmen.
KTCC’s trailing-12-month asset turnover ratio of 1.23x is 131.1% higher than the industry average of 0.62x. Its trailing-12-month ROTA of 1.23% is significantly higher than the 0.03% industry average.
In the fiscal fourth quarter that ended July 1, 2023, KTCC reported net sales of $162.61 million, up 28.8% year-over-year. The company’s gross profit rose 18.2% year-over-year to $13.90 million and operating income came in at $4.22 million, representing an increase of 86.8% year-over-year. Moreover, its net income increased 9.7% year-over-year to $1.06 million.
KTCC expects revenue in the $140 million to $150 million range and earnings per diluted share in the $0.05 to $0.15 range for the first quarter of fiscal 2024.
Shares of KTCC have lost 11.6% year to date to close the last trading session at $3.83.
KTCC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
KTCC also has an A grade for Growth and Momentum and a B for Value, Stability, and Sentiment. Within the Technology - Services industry, the stock is ranked #15 out of 80 stocks.
Click here for KTCC’s additional Quality ratings.
Stock #2: Zoom Video Communications, Inc. (ZM)
ZM is a leading provider of video-first unified communications globally. The company’s services include Zoom Meetings, Phone, Chat, Rooms, Hardware-as-a-Service, Conference Room Connector, Events, OnZoom, Webinars, Developer Platform, App Marketplace, and Contact Center, serving diverse industries.
ZM’s trailing-12-month gross profit margin and levered FCF margin of 75.62% and 34.48% are 53.1% and 367.1% higher than the industry averages of 49.41% and 7.38%.
On October 30, 2023, ZM announced that ZM AI Companion, the company’s generative AI assistant, generated one million meeting summaries and over 125,000 accounts, swiftly reaching a significant milestone in less than two months.
The new features include shorter meeting summary summaries, more improvements, and more language support. More features, including support for 32 additional languages, speech analytics in Smart Recordings, and integration into Zoom Events with optional control over language model usage, are all planned by ZM for the November release.
During the second quarter ended July 31, 2023, ZM’s revenue and gross profit stood at $1.14 billion and $872.12 million, up 3.6% and marginally year-over-year, respectively. Its non-GAAP income from operations grew 17.3% year-over-year to $461.68 million and non-GAAP net income increased 26.6% from the year-ago quarter to $409.57 million. Moreover, its free cash flow (non-GAAP) rose 26.2% year-over-year to $289.37 million.
ZM expects total revenue to be between $1.115 billion and $1.120 billion and revenue in constant currency is expected to be between $1.12 billion and $1.12 billion for the third quarter. Its non-GAAP income from operations is expected to be between $400.0 million and $405.0 million. Non-GAAP EPS is expected to be between $1.07 and $1.09 with approximately $309 million weighted average shares outstanding for the same quarter.
Street expects ZM’s revenue and EPS for the fiscal third quarter that ending October 2023 to grow 1.6% and marginally year-over-year to $1.12 billion and $1.07.
Shares of ZM rose 1.2% intraday to close the last trading session at $60.
ZM’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
ZM has a B grade for Growth, Value, and Quality. Within the same industry, it is ranked #10.
In addition to the POWR Ratings stated above, one can see ZM’s additional POWR Ratings for Momentum, Stability and Sentiment here.
Stock #1: LiveRamp Holdings, Inc. (RAMP)
RAMP is a technology company that operates a data collaboration platform in the United States, Europe, the Asia-Pacific, and internationally. It helps organizations unify customer data while protecting privacy. It offers people-based marketing solutions, including data collaboration, activation, measurement, identity, and a data marketplace.
RAMP’s trailing-12-month gross profit margin and levered FCF margin of 71.29% and 22% are 44.3% and 198% higher than the industry averages of 49.41% and 7.38%.
On October 17, RAMP launched its new partner solution for identity integration with AWS Entity Resolution by Amazon Web Services (AWS) to increase market interoperability.
With this integration, marketers, publishers, tech platforms, and agencies can extend the data interoperability in the cloud to marketing and advertising destinations using RampID™, RAMP’s durable, privacy-centric identifier connecting clients to the digital and martech ecosystem.
On June 29, 2023, RAMP and Snowflake Inc.'s (SNOW) Media Data Cloud partnered to integrate identity and transaction capabilities using cloud-native technology. RAMP is also investigating artificial intelligence (AI), machine learning, and natural language processing to make cutting-edge technology more accessible for complex measurement models in marketing.
For the fiscal 2024 first quarter ended June 30, 2023, RAMP’s revenues stood at $154.07 million, up 8.3% year-over-year. The company’s gross profit rose 7.1% year-over-year to $108.45 million. Additionally, its non-GAAP net earnings and EPS increased 463.2% and 480% year-over-year to $19.53 million and $0.29, respectively.
RAMP anticipates revenue of $152 million, marking a 3% year-over-year increase, with a non-GAAP operating income at $19 million for the second quarter of fiscal 2024 that ended September 30, 2023.
Analysts expect revenue for the fiscal second quarter that ended September 2023 to grow 3.5% year-over-year to $152.28 million. Its EPS is estimates to increase 11% year-over-year to $0.24 in the to-be-announced quarter.
The stock has soared 48% over the past year to close the last trading session at $27.50. It gained 14.2% over the past six months.
RAMP’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
RAMP has an A grade for Sentiment and a B for Growth, Value, and Quality. Within the same industry, it is ranked #2.
To see RAMP’s additional POWR Ratings for Momentum and Stability, click here.
What To Do Next?
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ZM shares were trading at $60.12 per share on Tuesday morning, up $0.12 (+0.20%). Year-to-date, ZM has declined -11.25%, versus a 10.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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