Enterprises are investing in digital transformation, increasing demand for tech services. The global tech industry is set for significant growth due to rising needs for service assurance, cybersecurity, and marketing across various sectors. Additionally, strong AI investments are further improving the industry's outlook.
As enterprises continue to invest in tech services, stocks like NetScout Systems, Inc. (NTCT) and Box, Inc. (BOX) could be perfect additions to one’s portfolio.
Gartner forecasts IT services spending to rise by 8% to $5.06 trillion this year, underscoring technology's role in boosting operations, resilience, and productivity. According to Statista, revenue in the IT services market is expected to reach $522 billion due to growing demand for sustainable products and increased adoption of technology to enhance quality and efficiency.
IT services revenue is projected to grow at a CAGR of 5.28%, reaching $675.20 billion by 2029. Moreover, the excitement around AI, automation, quantum computing, hybrid cloud, and sustainability initiatives is transforming data processing and meeting evolving consumer needs, further boosting the sector’s prospects.
Considering these conducive trends, let’s assess the fundamentals of the two Technology - Services picks, starting with the second choice.
Stock #2: NetScout Systems, Inc. (NTCT)
NTCT provides service assurance and cybersecurity solutions internationally to protect digital business services against disruptions. The company offers nGeniusONE management software to predict, preempt, and resolve network and service delivery problems, as well as specialized platforms and analytic modules to analyze and troubleshoot traffic in radio access and Wi-Fi networks.
On June 26, 2024, NTCT expanded its Arbor Cloud DDoS attack mitigation network into Canada, adding a new scrubbing center in Toronto with over 15 Tbps of dedicated attack capacity. This expansion aims to reduce latency for Canadian enterprises and ISPs while ensuring compliance with local privacy and data sovereignty regulations.
On June 20, 2024, NTCT announced a multi-year extension of its partnership with Vodafone, enhancing network monitoring capabilities across Vodafone's hybrid environment, including 5G Standalone.
This agreement leverages NTCT’s InfinistreamNG to provide real-time visibility and smart data analytics, aiming to optimize network performance and customer experience.
In terms of the trailing-12-month gross profit margin, NTCT’s 77.41% is 57.3% higher than the 49.20% industry average. Its 16.18% trailing-12-month EBITDA margin is 64.9% higher than the 9.81% industry average. Likewise, the stock’s 7.14% trailing-12-month EBIT margin is 41.9% higher than the 5.03% industry average.
NTCT’s total revenues for the fourth quarter ended March 31, 2024, were $203.44 million. Its non-GAAP gross profit stood at $157.05 million. The company’s non-GAAP net income was $39.82 million, or $0.55 per share, representing increases of 46.5% and 44.7% over the prior-year quarter, respectively.
In addition, as of March 31, 2024, the company’s total current assets were $672.49 million, compared to $617.36 million as of March 31, 2023.
Street expects NTCT’s EPS and revenue for the quarter ending December 31, 2024, to increase 5.5% and 5.2% year-over-year to $0.77 and $229.50 million, respectively. NTCT surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined marginally to close the last trading session at $18.77.
NTCT’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 #7 out of 79 stocks in the Technology - Services industry. It has an A grade for Growth and a B for Value and Quality. Click here to see NTCT’s Momentum, Stability, and Sentiment ratings.
Stock #2: Box, Inc. (BOX)
BOX provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. It serves financial services, health care, government, and legal services industries internationally.
On June 27, 2024, BOX announced significant upgrades to BOX AI, featuring unlimited queries for Enterprise Plus customers, integration with GPT-4o, and expanded support for various file types. These enhancements aim to boost content management and streamline workflows through advanced AI functionalities.
On April 9, 2024, BOX announced that Bulletproof, a global brand agency, selected BOX as its cloud platform for content and production management. Bulletproof will transition from on-premise servers to BOX to enhance secure collaboration with clients and partners and improve workflow efficiency by accessing files and resources from any location.
In terms of the trailing-12-month Return on Total Capital, BOX’s 6.99% is 145.6% higher than the 2.85% industry average. Likewise, its 11.73% trailing-12-month Return on Total Assets is 530.6% higher than the industry average of 1.86%. Its 0.92x trailing-12-month asset turnover ratio is 47.5% higher than the industry average of 0.62x.
BOX’s revenues for the first quarter ended April 30, 2024, increased 5.1% year-over-year to $264.66 million. Its non-GAAP gross profit increased 8.1% year-over-year to $212.18 million. The company’s non-GAAP operating income increased 22.7% year-over-year to $70.40 million.
Additionally, its non-GAAP attributable net income increased 22.9% year-over-year to $58.40 million. Its non-GAAP attributable net income per share increased 21.9% year-over-year to $0.39. Also, the company’s non-GAAP free cash flow came in at $123.24 million, representing an increase of 13.9% year-over-year.
Analysts expect BOX’s EPS and revenue for the quarter ending July 31, 2024, to increase 12.4% and 3% year-over-year to $0.40 and $269.20 million, respectively. It surpassed the EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 5.4% to close the last trading session at $25.96.
BOX’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 is ranked #4 in the Technology - Services industry. It has an A grade for Growth, and Quality and a B for Value. To see BOX’s Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
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BOX shares were trading at $25.75 per share on Monday afternoon, down $0.38 (-1.45%). Year-to-date, BOX has gained 0.55%, versus a 17.45% 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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