The tech industry’s prospects appear bright, thanks to ever-evolving innovations shaping its growth trajectory. Enterprises’ growing focus on trends such as AI-integrated hardware, IoT tech services, and cloud computing, along with scalable solutions that reduce IT costs and enable a focus on core competencies, is driving this positive outlook.
Against this backdrop, investors might consider investing in fundamentally strong tech stocks like Dell Technologies Inc. (DELL), HP Inc. (HPQ), and Zoom Video Communications, Inc. (ZM), which currently have low P/E ratios and present a good buying opportunity.
This year, the tech industry is emerging with technologies such as RPAs, blockchain, extended reality, and platform engineering, especially in the context of hybrid work environments. These innovations open new avenues for tech services companies to provide high-quality solutions to their clients. It is noteworthy that IT services spending is projected to grow 7.1% this year, reaching $1.61 trillion.
The increasing demand for automation is driving growth in the tech services sector. The U.S. IT Services Market is projected to grow from $461.03 billion in 2024 to $630.76 billion by 2029, reflecting a CAGR of 6.5%.
Meanwhile, these upward tech trends are driving demand for high-quality hardware. This demand stems from the need for high-performance ecosystems that can manage growing workloads across industries, thereby boosting the sector and presenting a strong investment opportunity. The IT hardware market is expected to grow at a CAGR of 7.9%, reaching $191.03 billion by 2029.
Considering these conducive trends, let’s assess the fundamentals of the three abovementioned Technology - Services stocks, starting with the third choice.
Dell Technologies Inc. (DELL)
DELL designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments, Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
In terms of forward non-GAAP P/E, DELL’s 13.21x is 40.2% lower than the 22.09x industry average. Its 1.12x forward non-GAAP PEG is 35.9% lower than the 1.75x industry average. Similarly, its 8.40x forward EV/EBITDA is 37.3% lower than the 13.40x industry average.
DELL’s net revenue increased 6.3% year-over-year to $22.24 billion for the first quarter ended May 3, 2024. Its non-GAAP operating income stood at $1.47 billion. Moreover, the company’s non-GAAP net income and EPS were $923 million and $1.27, respectively.
Street expects DELL’s revenue for the quarter ended July 31, 2024, to increase 5.1% year-over-year to $24.10 billion. Its EPS for the quarter ending October 31, 2024, is expected to increase 15.7% year-over-year to $2.17. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, DELL’s stock has gained 84.4% to close the last trading session at $98.18.
DELL’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #18 out of 39 stocks in the B-rated Technology – Hardware industry. It has a B grade for Growth, Value, and Sentiment. Click here to see DELL’s ratings for Momentum, Stability, and Quality.
HP Inc. (HPQ)
HPQ provides personal computing and other digital access devices, imaging and printing products, and related technologies, solutions, and services worldwide. The company operates through three segments: Personal Systems, Printing, and Corporate Investments.
On July 25, 2024, HPQ announced expanded U.S. consumer financing options for HPQ’s products on HP.com. Through partnerships with Bread Financial, Concora Credit, and Koalafi, HPQ now offers financing options, including promotional plans and lease-to-own, to nearly all U.S. consumers, aiming to enhance accessibility and purchasing power.
In terms of forward non-GAAP P/E, DELL’s 9.48x is 57.1% lower than the 22.09x industry average. Likewise, its 0.75x forward EV/Sales is 71.5% lower than the 2.64x industry average. Also, its 8.75x forward EV/EBIT is 53% lower than the 18.62x industry average.
In the fiscal second quarter ending April 30, 2024, HPQ reported a total net revenue of $12.80 billion. Its non-GAAP earnings from operations increased 1.8% year-over-year to $1.13 billion. Similarly, the company’s non-GAAP net earnings grew 3.4% from the previous year’s quarter to $812 million, and non-GAAP net EPS rose 3.8% from the year-ago value to $0.82.
For the quarter ended July 31, 2024, HPQ’s EPS and revenue are expected to increase 0.5% and 1.3% year-over-year to $0.86 and $13.37 billion, respectively. HPQ surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 19.4% to close the last trading session at $32.75.
HPQ’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value. Within the Technology – Hardware industry, it is ranked #15. To access the additional POWR Ratings of HPQ for Growth, Momentum, Stability, Sentiment, and Quality, click here.
Zoom Video Communications, Inc. (ZM)
ZM provides a unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company offers Zoom Meetings, Zoom Phone, Zoom Chat, Zoom Rooms, Zoom Conference Room Connector, Zoom Events, OnZoom, and Zoom Webinars.
On August 5, 2024, ZM announced the launch of Zoom Docs, an AI-powered document solution integrated into Zoom Workplace. It enhances collaboration by converting meeting content into actionable documents, and is available at no extra cost with Zoom Workplace plans.
On June 20, 2024, ZM announced that Workvivo, its employee experience platform, is now available for resale by its channel partners. This expansion allows partners to offer Workvivo’s employee engagement solutions alongside ZM’s existing services.
In terms of forward non-GAAP P/E, DELL’s 10.99x is 50.2% lower than the 22.09x industry average. Its 5.37x forward EV/EBITDA is 59.9% lower than the 13.40x industry average. Furthermore, its 1.34x forward non-GAAP PEG is 23.4% lower than the 1.75x industry average.
ZM’s revenues for the first quarter, which ended on April 30, 2024, increased 2.7% year-over-year to $1.14 billion. Similarly, its gross profit rose 3.2% over the prior-year quarter to $867.93 million.
For the same quarter, the company’s non-GAAP income from operations increased 8.1% year-over-year to $456.60 million. In addition, the company’s non-GAAP net income was $426.32 million, or $1.35 per share, up 20.7% and 16.4% from the prior year’s quarter, respectively.
Analysts expect ZM’s revenue for the quarter ended July 31, 2024, to increase marginally year-over-year to $1.15 billion. Its EPS for fiscal 2026 is expected to increase marginally year-over-year to $5.11. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has declined 4.5% to close the last trading session at $55.63.
ZM’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.
It has a B grade for Value and Quality. Within the Technology - Services industry, it is ranked #8 out of 75 stocks. To see ZM’s Growth, Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
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DELL shares were trading at $95.25 per share on Tuesday afternoon, down $2.93 (-2.98%). Year-to-date, DELL has gained 25.99%, versus a 12.05% 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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