As businesses continue to digitize, the demand for tech services like digital outsourcing, engineering, IT services, and multi-cloud enterprise analytics is soaring. This creates a compelling investment opportunity for value investors to consider affordable high-growth tech stocks like TaskUs, Inc. (TASK), Science Applications International Corporation (SAIC), and Teradata Corporation (TDC).
This year, global IT spending reached $5.27 trillion, reflecting strong growth prospects ahead. The increasing demand for cloud solutions, cybersecurity, automation, and data management is driving both major corporations and small to medium enterprises (SMEs) to invest in IT services for enhanced operations and efficiency. This trend underscores the current optimism in the tech market.
Furthermore, the rise of smart devices, personalized services, and innovations like 5G are unlocking new opportunities across industries. Moreover, growing data security concerns and regulatory requirements, especially in healthcare and finance, are fueling investments in IT services. As a result, the U.S. IT services market is projected to grow at a 7.9% CAGR through 2030.
Considering these conducive trends, let’s assess the fundamentals of the three abovementioned Technology – Services picks, starting with number three.
Stock #3: TaskUs, Inc. (TASK)
TASK provides digital outsourcing services for companies internationally. It offers a digital customer experience consisting of omnichannel customer care services primarily delivered through non-voice digital channels, other solutions, including experience and customer care services for new products or market launches, and customer acquisition solutions.
In terms of forward non-GAAP P/E, TASK’s 9.55x is 53.6% lower than the 9.55x industry average. Its 12.24x forward EV/EBIT is 28.1% lower than the 17.02x industry average. Moreover, its 1.25x forward EV/Sales is 35.8% lower than the 1.94x industry average.
TASK’s revenue grew at a CAGR of 15.9% over the past three years. Similarly, its EBITDA grew at a CAGR of 6.3% during the same period.
TASK’s service revenue for the second quarter, which ended June 30, 2024, stood at $237.94 million, up 3.8% year-over-year. Its adjusted EBITDA came in at $51.25 million. The company’s adjusted net income stood at $28.64 million and $0.31 per share. Also, as of June 30, 2024, the company’s total assets stood at $886.15 million, compared to $864.20 million as of December 31, 2023.
Street expects TASK’s revenue for the quarter ended September 30, 2024, to increase 8.7% year-over-year to $245.33 million. Its EPS for the quarter ending December 31, 2024, is expected to rise marginally year-over-year to $0.35. TASK surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 51.3% to close the last trading session at $12.37.
TASK’s POWR Ratings reflect robust prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 76 stocks in the Technology – Services industry. It has a B grade for Growth, Value, and Quality. Click here to see TASK’s Momentum, Stability, and Sentiment ratings.
Stock #2: Science Applications International Corporation (SAIC)
SAIC provides technical, engineering, and enterprise information technology (IT) services primarily in the United States. The company's offerings include a comprehensive range of engineering, technology, IT, logistics, training, simulation, and end-to-end services, including cloud migration, managed services, infrastructure modernization, and data management platform solutions.
On October 15, 2024, SAIC and Wind River announced an expanded strategic partnership to accelerate the development and deployment of mission-critical systems for U.S. Army and government customers. This collaboration will enhance product integration, speed up development, and improve system functionality.
On September 18, 2024, SAIC announced a $229 million contract to modernize IT solutions for NORAD and U.S. Northern Command, enhancing network resilience and cybersecurity.
In terms of the forward EV/Sales, SAIC’s 1.28x is 34% lower than the 1.94x industry average. Its 16.32x forward EV/EBIT is 4.1% lower than the 17.02x industry average. Likewise, its 0.98x forward Price/Sales is 35.5% lower than the 1.52x industry average.
SAIC’s EPS grew at a CAGR of 4.5% over the past three years. Moreover, its revenue grew at a CAGR of 5.5% over the past five years.
For the second quarter that ended August 2, 2024, SAIC’s total revenues increased 1.9% year-over-year to $1.82 billion. Likewise, its adjusted operating income increased marginally over the prior-year quarter to $164 million. Furthermore, its non-GAAP net income came in at $105 million, while its non-GAAP EPS remained flat year-over-year at $2.05.
Analysts expect SAIC’s revenue for the quarter ending October 31, 2024, to increase 2% year-over-year to $1.93 billion. Its EPS for the quarter ending January 31, 2025, is expected to grow 43.8% year-over-year to $2.06. Over the past year, the stock has gained 29% to close the last trading session at $147.24.
SAIC’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
SAIC is ranked #8 in the same industry. It has a B grade for Growth, Value, and Momentum. To see SAIC’s Stability, Sentiment, and Quality ratings, click here.
Stock #1: Teradata Corporation (TDC)
TDC provides a connected multi-cloud data platform for enterprise analytics. The company offers Teradata Vantage, a data platform that allows companies to leverage their data across an enterprise, as well as connects various sources of data to drive ecosystem simplification and support customers on their journey to the cloud through an integrated migration.
On October 8, 2024, TDC announced new capabilities for VantageCloud Lake and ClearScape Analytics, allowing businesses to deploy cost-effective generative AI solutions with NVIDIA AI, enhancing flexibility, security, and ROI.
On September 17, 2024, TDC announced new features for ClearScape Analytics to enhance AI/ML investments, improve data science productivity, and simplify AI operationalization. These updates include Spark-to-ClearScape conversion, AutoML, KNIME integration, and open-source ML capabilities.
In terms of forward EV/EBIT, TDC’s 9.84x is 52.3% lower than the 20.64x industry average. Similarly, its 14.25x forward non-GAAP P/E is 41% lower than the 24.13x industry average. Also, its 1.72x forward non-GAAP PEG is 8.3% lower than the 1.87x industry average.
TDC’s total revenues for the second quarter ended June 30, 2024, were $436 million. Its non-GAAP operating income was $96 million, up 33.3% year-over-year. Similarly, the company’s non-GAAP net income and non-GAAP EPS increased by 26.5% and 33.3%, respectively, from the year-ago values, reaching $62 million and $0.64.
For the quarter ended September 30, 2024, TDC’s EPS is expected to increase 33.7% year-over-year to $0.56. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 12.1% to close the last trading session at $31.97.
TDC’s robust 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 Value and Quality and a B for Growth and Sentiment. Within the Technology – Services industry, it is ranked #2. To access the additional POWR Ratings of TDC for Momentum and Stability, click here.
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SAIC shares were trading at $147.42 per share on Wednesday afternoon, up $1.07 (+0.73%). Year-to-date, SAIC has gained 19.97%, versus a 23.59% 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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