While macroeconomic challenges have harmed the IT sector, its long-term prospects look bright. However, I think it could be wise to wait for a better entry point in Lenovo Group Limited (LNVGY) and GoPro, Inc. (GPRO) for reasons discussed throughout this article.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the tech industry.
The global information technology market is predicted to reach $1.36 trillion by 2029, growing at a CAGR of 14.7%. Moreover, the technology hardware sector is growing due to increasing demand amid the adoption of emerging technologies, which require advanced hardware installations. The global AI in hardware market is expected to reach $248.09 billion by 2030, growing at a CAGR of 24.5%.
However, the global technology industry is experiencing a seismic transition, with issues ranging from economic downturns and supply chain interruptions to the emergence of ARM-based processes and the growing emphasis on sustainability.
Also, the tech industry has seen more than 240,000 jobs lost in 2023, a figure that is currently 50% higher than last year and growing. This significant increase in job losses is primarily attributed to the economic downturn caused by the global pandemic. The widespread disruption and uncertainty have led many companies to implement cost-cutting measures, including layoffs, to sustain their operations.
Let’s delve into the fundamentals of the featured stocks.
Lenovo Group Limited (LNVGY)
Headquartered in Quarry Bay, Hong Kong, LNVGY is an investment holding company that develops, manufactures, and markets technology products and services. It operates through the segments of Intelligent Devices Group, Infrastructure Solutions Group, and Solutions and Services Group.
LNVGY’s trailing-12-month ROCE of 21.19% is significantly higher than the 1.11% industry average. However, its trailing-12-month EBITDA margin of 4.89% is 47.1% lower than the industry average of 9.25%.
LNVGY’s total assets and current assets amounted to $23.41 billion and $39.26 billion for the period that ended September 30, 2023, compared to $22.94 billion and $38.92 billion for the period ended March 31, 2023, respectively.
However, its group revenue for the second quarter that ended September 30, 2023, came in at $14.41 billion, down 15.7% year-over-year. The company’s net income attributable to equity holders and EPS came in at $249.24 million and $1.99, decreased 53.9% and 53% year-over-year, respectively.
Analysts expect LNVGY’s revenue to decrease 9.2% year-over-year to $56.22 billion for the year ending March 2024. Its EPS is expected to decline 45.1% year-over-year to $1.54 for the same period. Over the past year the stock has gained 64.4% to close the last trading session at $26.65.
LNVGY’s POWR Ratings reflect this uncertain outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LNVGY also has a C grade for Stability, Sentiment and Quality. It is ranked #19 out of 37 stocks in the Technology - Hardware industry. Click here for the additional POWR Ratings for Growth, Value and Momentum for LNVGY.
GoPro, Inc. (GPRO)
GPRO develops and sells cameras, mountable and wearable accessories, and subscription services and software internationally.
GPRO’s trailing-12-month gross profit margin of 32.48% is 8.4% lower than the industry average of 35.47%.
GPRO’s revenue for the third quarter ended September 30, 2023, declined 3.5% year-over-year to $294.30 million. Its non-GAAP net income came in at $6.31 million, down 80.2% from the year-ago quarter. Also, its non-GAAP EPS came in at $0.04, declined 78.9% year-over-year.
However, as of September 30, 2023, the company’s other long-term assets stood at $310.35 million, compared to $289.29 million as of December 31, 2022. Also, its other long-term liabilities amounted to $3.80 million, compared to $5.44 million for the same period.
Street expects GPRO’s revenue to decline 5.2% year-over-year to $1.04 billion for the year ending December 2023. Its EPS is expected to come in at negative $0.20. Shares of GPRO has gained 3.9% over past three months to close the last trading session at $3.49.
GPRO’s mixed outlook is reflected in its POWR Ratings. The stock has an overall C rating, which translates to a Neutral in our proprietary system.
Within the same industry, it is ranked #25. It has a C grade for Growth. To see additional GPRO’s ratings for Value, Momentum, Stability, Quality, and Sentiment, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
LNVGY shares were trading at $26.41 per share on Friday morning, down $0.24 (-0.90%). Year-to-date, LNVGY has gained 70.11%, versus a 26.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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