The tech industry is proliferating due to increased automation and rising investments in digital transformation. After facing the challenges arising out of higher interest rates last year, the tech sector now looks likely to benefit from the Federal Reserve's expected rate cuts this year, supporting its overall expansion.
Considering these factors, it could be wise to buy fundamentally strong tech stocks: LiveRamp Holdings, Inc. (RAMP), Gilat Satellite Networks Ltd. (GILT), and AstroNova, Inc. (ALOT). These stocks are A-rated (Strong Buy) in our proprietary POWR Ratings system.
Before delving deeper into their fundamentals, let’s discuss why the tech industry is growing.
The excitement over generative AI and anticipated rate cuts by the Federal Reserve has led to the strong performance of the tech-heavy Nasdaq Composite. The Nasdaq has risen 34.8% over the past year. Globally, enterprises are bolstering their digital capabilities through investments in digital transformation, helping drive positive momentum for tech companies.
Businesses are investing in digitization to modernize, improve agility, scalability, and flexibility, gain a competitive edge, improve customer satisfaction, and enhance operational efficiency. According to Gartner, global IT spending this year is expected to reach $5 trillion, marking a 6.8% increase over last year. In addition, the spending on IT services this year is projected to grow 8.7% over the prior year to $1.50 trillion.
Meanwhile, the demand for communication and networking equipment is rising because of emerging technologies like 5G, Network Function Virtualization (NFV), IoT integration, increasing data traffic, expanding data centers, and adoption of cloud services. The global optical communication and networking equipment market is expected to grow at a CAGR of 15.8% to reach $107.46 billion by 2030.
Moreover, given the rise in digitization initiatives, there has been an increase in demand for advanced hardware solutions to meet the complex processing demands and increased workloads. The market for IT hardware is expected to grow at a CAGR of 7.9% to reach $191.03 billion by 2029.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 44.6% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the three technology stocks mentioned above.
LiveRamp Holdings, Inc. (RAMP)
RAMP is a technology company that operates a data collaboration platform internationally. The company operates the LiveRamp Data Collaboration platform, which enables organizations to unify customer and prospect data to build a single view of the customer in a way that protects consumer privacy.
On January 31, 2024, RAMP completed the acquisition of Habu, a data clean room software provider, establishing an industry-leading platform for safe data collaboration across clouds and walled gardens globally. This strategic move expands RAMP’s collaboration network and drives the adoption of its core identity and connectivity solutions.
RAMP’s Chief Strategy Officer, David Eisenberg, said, “Through our combined offering, companies will now have one simple platform to measure campaigns across all walled gardens, programmatic, and media channels while connecting data seamlessly across any cloud, warehouse, or clean room. I’m thrilled to officially welcome Habu to the LiveRamp team."
In terms of the trailing-12-month levered FCF margin, RAMP’s 23.86% is 167.7% higher than the 8.92% industry average. Likewise, its 72.05% trailing-12-month gross profit margin is 46.9% higher than the industry average of 49.06%.
For the third quarter that ended December 31, 2023, RAMP’s revenues increased 9.6% year-over-year to $173.87 million. Its adjusted EBITDA rose 38.7% year-over-year to $36.98 million. The company’s non-GAAP net earnings from continuing operations came in at $32.26 million, representing an increase of 74% year-over-year. Its non-GAAP EPS increased 67.9% year-over-year to $0.47.
For the quarter ending March 31, 2024, RAMP’s revenue is expected to increase 6.7% year-over-year to $158.54 million, and its EPS for the quarter ending June 30, 2024, is expected to increase 21.2% year-over-year to $0.35. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 76.5% to close the last trading session at $41.96.
RAMP’s POWR Ratings reflect robust prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked first out of 77 stocks in the B-rated Technology - Services industry. It has an A grade for Sentiment and a B for Growth and Quality. Click here to see RAMP’s Value, Momentum, and Stability ratings.
Gilat Satellite Networks Ltd. (GILT)
Headquartered in Petah Tikva, Israel, GILT and its subsidiaries provide satellite-based broadband communication solutions in Israel, the United States, Peru, and internationally. It operates in three segments: Satellite Networks, Integrated Solutions, and Network Infrastructure and Services.
On December 4, 2023, GILT announced that its U.S.-based subsidiary, Wavestream, was awarded a nearly $20 million contract by the United States Army for an additional 50W Ka-band BUCs to sustain anytime, anywhere satellite connectivity for the long-term support of thousands of mobile Satellite Transportable Terminals (STTs).
Bob Huffman, Wavestream’s General Manager and Senior VP at GILT, said, “With more than a decade and a half of field-proven performance, the Wavestream 50W Ka SSPA continues to satisfy the Army’s need for dependable satellite communications in support of our warfighters operating in harsh and hostile environments around the world.”
On November 16, 2023, GILT announced the successful completion of its acquisition of DataPath, Inc., enhancing GILT's presence in the defense sector with an anticipated $50 million increase in annual revenues. This strategic move creates synergies and opens new opportunities for both companies in the global defense and satellite communication sectors.
In terms of the trailing-12-month EBIT margin, GILT’s 11.91% is 165.3% higher than the 4.49% industry average. Its 16.70% trailing-12-month EBITDA margin is 89.3% higher than the 8.82% industry average. Likewise, its 7.51% trailing-12-month Return on Total Capital is 213.1% higher than the industry average of 2.40%.
GILT’s revenues for the fiscal third quarter ended September 30, 2023, increased 5.9% year-over-year to $63.93 million. Its non-GAAP gross profit rose 12.1% over the prior-year quarter to $25.91 million. The company’s non-GAAP operating income stood at $6.10 million, up 39.6% over the year-ago quarter.
Its non-GAAP net income rose 51.2% over the prior-year quarter to $4.58 million for the same quarter. Also, its non-GAAP EPS came in at $0.08, representing an increase of 33.3% year-over-year.
For the quarter ended December 31, 2023, GILT’s revenue is expected to increase 4.6% year-over-year to $75.99 million. Over the past nine months, the stock has gained 19.9% to close the last trading session at $6.51.
GILT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Value, and Quality. Within the Technology – Communication/Networking industry, it is ranked first out of 46 stocks. To access the additional ratings of GILT for Momentum and Stability, click here.
AstroNova, Inc. (ALOT)
ALOT designs, develops, manufactures, and distributes specialty printers and data acquisition and analysis systems in the United States, Europe, Asia, Canada, Central and South America, and internationally. The company operates in two segments, Product Identification (PI) and Test & Measurement (T&M).
In terms of the trailing-12-month EBIT margin, ALOT’s 6.96% is 55.2% higher than the 4.49% industry average. Likewise, its 2.49% trailing-12-month Return on Total Assets is 474% higher than the industry average of 0.43%. Furthermore, the stock’s 1.08x trailing-12-month asset turnover ratio is 76.7% higher than the industry average of 0.61x.
ALOT’s total revenue for the third quarter ended October 28, 2023, came in at $37.55 million. Its non-GAAP gross profit increased 18.4% from the year-ago value to $14.78 million. Likewise, the company’s non-GAAP operating income stood at $4.62 million, up 123.8% from the prior year’s quarter.
Also, the company’s non-GAAP net income and non-GAAP EPS rose 231.9% and 825% year-over-year to $2.75 million and $0.37, respectively. Its adjusted EBITDA grew 134.5% over the prior-year quarter to $5.66 million.
Over the past year, ALOT’s stock has gained 37.2% to close the last trading session at $17.49.
ALOT’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Sentiment. It is ranked first out of 36 stocks in the A-rated Technology - Hardware industry. To see ALOT’s Momentum and Quality ratings, click here.
What To Do Next?
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RAMP shares were trading at $38.59 per share on Friday afternoon, down $3.37 (-8.03%). Year-to-date, RAMP has gained 1.87%, versus a 5.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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