Last month’s softer-than-expected inflation data has evoked investors’ hope and reinforced a possibility of a soft-landing scenario. Amid improving market sentiments, let us explore if these three top-rated tech stocks, Box, Inc. (BOX), NetScout Systems, Inc. (NTCT), and GigaCloud Technology, Inc. (GCT), could be solid buys for August.
After facing the brunt of the Federal Reserve’s aggressive rate hikes last year, the tech industry made a massive comeback in the first half of 2023. The tech-heavy Nasdaq has gained 43.7% year-to-date. Despite the market tantrums, tech stocks rebounded strongly this year, driven by the boom in artificial intelligence.
Moreover, inflation fell to its lowest annual rate in more than two years during June, and the Consumer Price Index (CPI) rose 3% year-over-year, which came as good news for the tech sector.
Even though the Fed implemented its most aggressive rate-rising cycle in 40 years, the U.S. economy has remained robust on the backs of strong employment and consumer spending. Last month, the Fed raised the interest rates by a quarter-percentage point to a 22-year high as it continues to fight inflation. This, in turn, has renewed some pressure on tech stocks.
However, the demand for technology services is expected to remain strong as enterprises invest heavily in digitizing their operations to improve their digital abilities. According to Gartner, IT spending this year is forecasted to increase 5.5% year-over-year to $4.60 trillion.
The robust adoption of cutting-edge technologies like Artificial Intelligence (AI), blockchain, Internet of Things (IoT) is further driving the demand for technology products and services. Revenue in the IT services market is expected to grow at a CAGR of 7.4%, resulting in a market volume of $1.78 trillion by 2028.
Additionally, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 46% returns over the past nine months and 39.4% year-to-date. Given this backdrop, investors could look to buy the featured stocks to capitalize on the industry’s tailwinds.
Let’s take a closer look at their fundamentals.
Box, Inc. (BOX)
Box, Inc. provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. Its Software-as-a-Service platform allows users to collaborate on content, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features.
On July 27, BOX announced a new plugin for Microsoft’s next-generation AI workplace tool, Microsoft 365 Copilot. The new plugin will enable customers to use Microsoft 365 Copilot to make the Box files inside of an organization more functional and valuable. In addition, it released enhanced capabilities between BOX and Microsoft 365 to boost collaboration in Microsoft Teams and Office Products.
Commenting on this, Diego Dugatkin, Chief Product Officer at BOX, said, “Integrating with Microsoft 365 Copilot is a natural extension of our AI strategy, and our existing collaboration will allow joint customers to use Box and Microsoft 365 Copilot together seamlessly.”
In the same month, the company revealed that Mitsubishi Heavy Industries, Ltd. had chosen BOX as a secure content management platform for its enterprise-grade security, compliance, and high scalability across the global enterprise. Such developments reflect the growing demand for the company’s offerings over its peers and should help expand its footprint.
BOX’s revenues increased 5.6% year-over-year to $251.89 million for the fiscal first quarter that ended April 30, 2023. Its gross profit rose 7.9% from the year-ago value to $190.25 million, while its non-GAAP operating income grew 16.7% from the year-ago value to $57.36 million.
Non-GAAP attributable net income came in at $47.52 million and $0.32, representing 33.7% and 39.1% improvements year-over-year, respectively. Also, the company’s adjusted free cash flow increased 19.1% from the prior-year period to $108.25 million.
The consensus revenue estimate of $261.29 million for the fiscal second quarter (ended July 31, 2023) represents a 6.2% increase year-over-year. The consensus EPS estimate of $0.35 for the to-be-reported quarter indicates a 24.9% improvement year-over-year. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
BOX’s revenue and total assets have increased at CAGRs of 11.9% and 5.3%, respectively, over the past three years, while its levered free cash flow has grown at a 27.9% CAGR.
The stock’s trailing-12-month gross profit and net income margins of 74.91% and 3.97% are 54.6% and 86.6% higher than the 48.45% and 2.12% industry averages, respectively. Likewise, its trailing-12-month ROTA of 3.59% is significantly higher than the 0.08% industry average.
Over the past three months, the stock has gained 16.7% to close the last trading session at $30.38.
BOX’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Growth and Quality and a B for Value. Out of the 79 stocks in the Technology - Services industry, it is ranked #2. To see the other ratings of BOX for Momentum, Stability, and Sentiment, click here.
NetScout Systems, Inc. (NTCT)
NTCT provides assurance and cybersecurity solutions. Its primary products are Service Assurance Solutions for network and application performance, business intelligence analytics, and cybersecurity solutions.
On July 25, NTCT released its next-generation Omnis Cyber Intelligence (OCI) solution for advanced network detection and response. In the face of rising cyber threats, OCI provides security teams real-time packet-level visibility across their digital infrastructure. It helps quickly identify threats and accelerate investigations by gathering network-based forensic evidence to reduce the Mean Time to Response (MTTR).
It is a valuable tool for verifying the effectiveness and improving the existing cybersecurity ecosystem, ensuring compliance, and lowering the risk of successful cyberattacks.
On May 23, the company unveiled Arbor® Sightline Mobile and MobileStream to strengthen the mobile security for 4G/5G mobile consumer services and network infrastructure. The new solution provides MNOs with comprehensive visibility into their mobile traffic to detect and manage cyber threats in a scalable way, to eliminate mobile subscriber and device disruptions quickly.
As mobile threat activity is expanding in tandem with a three-fold increase in traffic growth, such threat detection technologies could witness strong demand.
NTCT’s total revenue increased marginally year-over-year to $211.14 million in the first quarter (ended June 30, 2023), while its gross profit grew 6.4% from the year-ago value to $160.74 million. Its non-GAAP income from operations increased 20.8% year-over-year to $29.59 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.
Analysts expect NTCT’s EPS for the fiscal year 2023 (ending March 2024) to increase 3.9% year-over-year to $2.27. Its revenue estimate of $922.50 million for the current year is expected to increase marginally year-over-year. Moreover, it surpassed the EPS estimates in three of the trailing four quarters.
Over the past three years, its EBIT and net income have increased at CAGRs of 39.8% and 89.7%, respectively. Likewise, its EPS improved by 91.9% CAGR over the same period.
The stock’s trailing-12-month ROTA of 2.29% is significantly higher than the industry average of 0.08%. Also, its trailing-12-month net income and levered FCF margins of 6.83% and 19.51% are 221.2% and 179.5% higher than the 2.12% and 6.98% industry averages, respectively.
NTCT has gained 7.6% over the past three months to close the last trading session at $28.03.
It’s no surprise that NTCT has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Growth, Sentiment, and Quality. Within the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have NTCT’s ratings for Momentum and Stability. Get all NTCT ratings 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.
On June 14, GCT announced that its board of directors had approved a share repurchase program to repurchase up to $25 million of Class A shares.
On May 8, the company was recognized as the Bronze Stevie® Award winner in the Fastest Growing Company of the Year - Up to 2,500 Employees category in the 21st Annual American Business Awards®.
GCT’s CEO Larry Wu expressed, “We are thrilled to receive this award, which reflects the growing attention and recognition from our customers. Moving forward, we will continue to harness our technological know-how to drive innovation and efficiency within the B2B landscape.”
During the first quarter that ended March 31, 2023, GCT’s total revenues increased 13.6% year-over-year to $127.79 million, while its gross profit grew 75.3% from the year-ago value to $29.57 million.
Adjusted EBITDA amounted to $19.85 million, compared to $6.93 million in the prior-year quarter. In addition, net income attributable to ordinary shareholders came in at $15.94 million and $0.39 per share, up 236.4% and 200% year-over-year, respectively.
For the fiscal third quarter ending on September 30, 2023, GCT’s EPS is expected to increase significantly year-over-year to $0.23. Its revenue for the current quarter is expected to increase by 8.3% year-over-year to $138.66 million. The company surpassed the consensus revenue estimates in each of the trailing three quarters, which is promising.
Additionally, its revenue has grown at a 58.8% CAGR over the past three years, while its net income and EPS improved at CAGRs of 103.2% and 78.3%, respectively, over the same period.
GCT’s trailing-12-month net income margin and ROCE of 6.96% and 16.72% are 62.7% and 59.5% higher than the industry averages of 4.28% and 10.49%, respectively. Its trailing-12-month levered FCF margin of 14.31% compares with the 4.27% industry average.
GCT’s shares have surged 112.7% over the past nine months and 65.2% year-to-date to close the last trading session at $9.40.
GCT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and Sentiment and a B for Growth and Quality. Among the 79 stocks in the same industry, it is ranked #3. Click here to see the other ratings of GCT for Momentum and Stability.
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BOX shares were trading at $30.70 per share on Friday afternoon, up $0.32 (+1.05%). Year-to-date, BOX has declined -1.38%, versus a 18.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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