The technology industry is facing high demand due to increased IT spending and digital transformation. However, the Fed’s rate hikes to combat inflation is keeping the industry under pressure.
While quality tech stocks, Nokia Oyj (NOK) and Hewlett Packard Enterprise Company (HPE), could be worth buying, I think it could be wise to avoid Akoustis Technologies, Inc. (AKTS) and Ondas Holdings Inc. (ONDS), considering their weak fundamentals.
According to Gartner, global government IT spending is expected to reach $589.80 billion in 2023, a 7.6% rise from 2022.
Apeksha Kaushik, Principal Analyst at Gartner, said, “Governments are increasingly spending their IT budgets to replace legacy applications. Gartner’s 2023 CIO and Technology Executive Survey showed that 57% of government CIOs plan to increase funding for application modernization in 2023, up from 42% in 2022.”
Moreover, the global digital transformation market is expected to grow at 20.6% CAGR until 2029. Digital transformation enables businesses to streamline processes, improve customer experiences, drive innovation, and gain a competitive advantage.
Investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF (IYW) 26% returns over the past three months.
However, the sector has also gone through a hard time due to massive layoffs and high-interest rates. The U.S. central bank seems “inclined to skip tightening in June but could resume tightening in July. Today’s strong employment readings support that action,” said Kathy Bostjancic, chief economist for Nationwide.
The technology sector was responsible for 22,887 of the job losses announced in May. Additionally, companies that rely on global supply networks for their products and components are experiencing disruptions as a result of trade disputes and shipping delays. As a result, tech stocks may remain under pressure.
Stocks to Buy:
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions worldwide. The company operates in four segments: Network Infrastructure; Mobile Networks; Cloud and Network Services; and Nokia Technologies.
On May 30, 2023, NOK announced new, optimized Core Network software solutions for public safety and power utilities’ field and wide area network needs, broadening the portfolio available to large, mission-critical enterprises and governments and reflecting NOK’s deeper push to drive continued leadership in private wireless.
NOK’s forward EV/Sales multiple of 0.74 is 73.7% lower than the industry average of 2.82. Its forward Price/Book multiple of 0.92 is 75.8% lower than the industry average of 3.82.
NOK’s trailing-12-month ROCE of 21.97% is significantly higher than the industry average of 0.63%. Its trailing-12-month ROTA of 10.29% is significantly higher than the industry average of 0.08%.
NOK’s net sales increased 9.6% year-over-year to €5.86 billion ($6.28 billion) in the fiscal first quarter, which ended March 31, 2023. Its operating profit increased 20.3% year-over-year to €426 million ($456.60 million). Also, its EPS increased 366.7% year-over-year to €0.05.
The consensus revenue estimate of $27.91 million for the year ending December 2024 represents a marginal increase year-over-year. Its EPS is expected to grow 8.7% year-over-year to $0.49 for the same period. NOK’s shares have gained marginally intraday to close the last trading session at $4.05.
NOK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NOK has an A grade for Value. It is ranked #13 out of 50 stocks in the Technology - Communication/Networking industry. Click here for the additional POWR Ratings for Growth, Momentum, Stability, Sentiment, and Quality for NOK.
Hewlett Packard Enterprise Company (HPE)
HPE provides solutions that allow customers to capture, analyze, and act upon data seamlessly in the Americas, Europe, the Middle East, Africa, the Asia Pacific, and Japan. It operates in six segments: Compute; HPC & AI; Storage; Intelligent Edge; Financial Services; and Corporate Investments and Other.
On May 16, 2023, HPE announced the latest stage in the HPE Ezmeral Software platform, which is aimed to assist enterprises in leveraging data internationally and deploying analytics at scale via a predictable, software-as-a-service (SaaS) solution for hybrid multi-cloud settings.
HPE’s forward EV/EBITDA multiple of 5.32 is 62.8% lower than the industry average of 14.30. Its forward EV/Sales multiple of 1.01 is 77.1% lower than the industry average of 2.82.
HPE’s trailing-12-month ROCE of 5.01% is 699.4% higher than the industry average of 0.63%. Its trailing-12-month ROTA of 1.84% is significantly higher than the industry average of 0.06%.
During the fiscal second quarter ended April 30, 2023, HPE’s net revenue increased 3.9% year-over-year to $6.97 billion. Its earnings from operations came in at $520 million, up 151.2% year-over-year. Also, the company’s net earnings and EPS came in at $418 million and $0.32, up 67.2% and 68.4% year-over-year, respectively.
Analysts expect HPE’s revenue to increase 3.4% for the year ending October 2023 to be $29.45 billion. Its EPS is expected to increase 4.48% year-over-year to $2.11 for the same period. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 9.7% over the past nine months to close its last trading session at $14.67.
It’s no surprise that HPE has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B for Growth and Value. It is ranked #12 in the same industry.
Beyond what is stated above, we’ve also rated HPE for Stability, Quality, Momentum, and Sentiment. Get all HPE ratings here.
Stocks to Avoid:
Akoustis Technologies, Inc. (AKTS)
AKTS is a filter solutions company that engages in the development, design, and manufacture of Radio Frequency (RF) filter products for the mobile wireless device industry. It operates through the Foundry Fabrication Services and RF Filters segments.
AKTS’ forward Price/Sales multiple of 8.29 is 207.6% higher than the industry average of 2.69. Its forward EV/Sales multiple of 8.02 is 184% higher than the industry average of 2.82.
AKTS’ trailing-12-month EBIT margins of negative 273% compare with the industry average of 4.35%. Also, its trailing-12-month asset turnover ratio of 0.17x is 72.7% lower than the industry average of 0.61x.
During the third quarter that ended March 31, 2023, AKTS’ gross loss increased 46.3% year-over-year to $1.12 million. Its operating expenses increased 15.2% from the year-ago value to $16.17 million.
The company’s non-GAAP loss from operation and net loss increased 12.2% and 17.4% from the year-ago value to $13.20 million and $13.64 million, respectively. Also, its adjusted loss per share came in at $0.20, up 4.8% year-over-year.
Street expects AKTS’ EPS to come in at negative $0.83 for the year ending June 2023. It missed EPS estimates in three of four trailing quarters. Over the past nine months, the stock has lost 26.4% to close the last trading session at $3.15.
AKTS’ poor fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.
It is ranked #49 in the same industry. It has an F grade for Value and Quality and a D for Stability. To see additional AKTS’ ratings for Momentum, Sentiment, and Growth, click here.
Ondas Holdings Inc. (ONDS)
ONDS is a provider of private wireless data and drone solutions for secure, wide-area mission-critical business-to-business networks through its wholly owned subsidiaries, Ondas Networks Inc. and American Robotics, Inc. It operates in two segments: Ondas Networks and Ondas Autonomous Systems.
ONDS’ trailing-12-month EV/Sales multiple of 13.72 is 377.7% higher than the industry average of 2.87. Its trailing-12-month Price/Sales multiple of 8.75 is 210.5% higher than the industry average of 2.82.
ONDS’ trailing-12-month ROCE margins of negative 98.57% compare with the industry average of 0.63%. Also, its trailing-12-month ROTA of 0.04x is 93.1% lower than the industry average of 0.61x.
ONDS’ total operating expenses increased 35.3% year-over-year to $13.68 million for the first quarter that ended March 31, 2023. Its operating loss and net loss came in at $12.65 million and $14.46 million, up 26.6% and 44.4% year-over-year, respectively. The company’s net loss per share increased 25% from the year-ago value to $0.30.
ONDS’ EPS is expected to remain negative at $0.63 in the fiscal year ending December 2023. It has missed the EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 88.4% to close the last trading session at $0.86.
ONDS’ weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It also has an F grade for Value, Momentum, and Quality and a D for Stability and Sentiment. Within the same industry, it is ranked last. Click here to see ONDS’ rating for Growth.
What To Do Next?
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NOK shares were trading at $4.07 per share on Friday afternoon, up $0.02 (+0.49%). Year-to-date, NOK has declined -11.56%, versus a 12.18% 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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