3 Tech Stocks That Are Generating Great Margins

As the Delta coronavirus variant continues to wreak havoc across several parts of the world, many companies have been extending their remote work into 2022. For example, last month, Alphabet Inc.’s (GOOGL) CEO said that the company is extending its voluntary return-to-office policy through January next year due to uncertainties surrounding COVID-19. This could lead to increased demand for advanced tech solutions in the near term.

Moreover, consistent advancements in artificial intelligence (AI), the internet of things (IoT), and the cloud space are expected to help the industry grow further in upcoming months. According to a Research and Markets report, the global IT services market is expected to grow at a CAGR of 8.02% to reach $1.12 trillion by 2026.

So, it could be wise to bet on quality tech stocks such as Gartner, Inc. (IT), Qorvo, Inc. (QRVO), and Silicon Motion Technology Corporation (SIMO). They generate solid profit margins and are expected to deliver solid returns in the upcoming months.

Gartner, Inc. (IT)

IT operates as a research and advisory company across several countries through its three segments: Research; Conferences; and Consulting. It is a trusted advisor and objective resource serving leaders of all major functions across enterprises in every market sector worldwide.

On August 3, 2021, IT’s CEO Gene Hall, said “We continued our outstanding financial performance in the second quarter with strength in revenues, EBITDA, margins, and free cash flow. We repurchased over $1 billion of stock year-to-date and remain committed to returning excess capital to shareholders. We are raising our guidance to reflect the momentum we saw in the first half of 2021.”

IT’s total revenue increased 19.9% year-over-year to $1.17 billion for the fiscal second quarter that ended June 30, 2021. The company’s adjusted EBITDA came in at $355 million, up 84.9% year-over-year. Its EPS increased 413.1% year-over-year to $3.13.

In terms of trailing-12-month gross profit margin, IT's 68.79% is 40.3% higher than the industry average of 49.04%. In addition, the stock's trailing-12-month ROCE and ROTA of 75.31% and 7.96% are higher than the industry averages of 8.31% and 3.59%, respectively.

For fiscal 2021, analysts expect IT’s revenue to be $4.63 billion, representing a 12.9% year-over-year rise. The company’s EPS is expected to increase 59.5% year-over-year to $7.8 in fiscal 2021. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 140.1% to close yesterday’s trading session at $303.78.

IT’s POWR Ratings reflect this promising outlook. The stock has an overall grade of A, which equates to a Strong Buy rating in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has an A grade for Growth and Quality, and a B grade for Sentiment. Within the A-rated Outsourcing - Tech Services industry, it is ranked #2 out of 11 stocks. Click here to see additional grades for Stability, Value, and Momentum.

Qorvo, Inc. (QRVO)

QRVO develops and commercializes technologies and products for wireless and wired connectivity worldwide. The company operates in two segments: Mobile Products; and Infrastructure and Defense Products.

On July 28, QRVO launched its best-in-class GaN Power Amplifier Module for S-Band Radar. Roger Hall, the company’s general manager of High-Performance Solutions, said, “Qorvo is always up to the challenge of providing unique, high performance and effective solutions using GaN-on-SiC technology for a host of S-band applications. Qorvo’s legacy with defense programs and its reputation for quality make us the preferred vendor for radar manufacturers in the U.S. and around the world.”

QRVO’s total revenues increased 3.5% sequentially to $1.11 billion in the fiscal first quarter, that ended July 3, 2021. Its gross profit came in at $582.7 million, representing a 3.2% sequential rise. Its operating income increased 2.7% sequentially to $367 million, while its EPS came in at $2.83, representing a 3.3% sequential rise.

In terms of trailing-12-month gross profit margin, QRVO's 48.50% compares to the industry average of 49.04%. However, the stock's trailing-12-month ROCE and ROTA of 20.50% and 12.68% are higher than the industry averages of 8.31% and 3.59%, respectively.

Analysts expect QRVO’s revenue to grow 18.3% year-over-year to $4.75 billion in fiscal 2022. In addition, the company’s EPS is expected to increase 24.4% year-over-year to $12.12 in the current year. Also, it surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 33.5% to close yesterday’s trading session at $171.42.

QRVO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, which equates to a Strong Buy rating in our proprietary ratings system.

In addition, it has an A grade for Quality, and a B grade for Growth and Sentiment. It is ranked #11 out of 97 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to see additional grades for QRVO (Value, Momentum, and Stability).

Click here to check out our Semiconductor Industry Report for 2021

Silicon Motion Technology Corporation (SIMO)

Based in Kowloon, Hong Kong, SIMO is developing and marketing NAND flash controllers for solid-state storage devices (SSDs) across Taiwan, the United States, South Korea, China, and internationally. Its products are used in smartphones, tablets, personal computers (PCs), and other devices.

On August 31, SIMO launched its SM2320 single-chip, the fastest single-chip controller for external portable SSDs worldwide. As a result, this could give an edge to SIMO over its peers.

The company’s non-GAAP revenue increased 61.6% year-over-year to $221.10 million for the second quarter that ended June 30, 2021. SIMO’s non-GAAP operating profit came in at $64.48 million, up 112.2% year-over-year. While its non-GAAP net income increased 84.4% year-over-year to $52.73 million, its non-GAAP EPS came in at $1.50, up 85.2% year-over-year.

SIMO's trailing-12-month gross profit margin of 49.04% is the same as the industry average. The stock's trailing-12-month ROCE and ROTA of 17.68% and 12.75% are higher than the industry averages of 8.31% and 3.59%, respectively.

SIMO’s revenue is expected to come in at $1 billion in fiscal 2022, representing a 12.5% year-over-year rise. The company’s EPS is expected to increase 18.6% year-over-year to $7.01 in the next year. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 56.7% to close yesterday’s trading session at $71.63.

SIMO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, which indicates a Strong Buy rating in our proprietary ratings system.

In addition, it has a B grade for Growth, Momentum, Value, Quality, and Sentiment. SIMO is ranked #8 out of 97 stocks in the Semiconductor & Wireless Chip industry. Click here to see additional grades for SIMO (Stability).

Note that SIMO is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

IT shares were trading at $308.60 per share on Wednesday afternoon, up $4.82 (+1.59%). Year-to-date, IT has gained 92.65%, versus a 17.58% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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