The technology industry enjoys robust demand as a result of rising global IT service spending and digital transformation. However, supply chain issues, layoffs, and an expected economic slowdown are keeping the industry constrained.
While quality tech stock, Box, Inc. (BOX), could be worth buying, I think it could be wise to avoid HIVE Blockchain Technologies Ltd. (HIVE) and Bakkt Holdings, Inc. (BKKT), 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.
Moreover, according to the Business Research Company’s IT Services Global Market Report 2023, the global IT services market is predicted to increase at an 8% CAGR to $4910.4 billion by 2027. Rising e-commerce penetration, smart city development, the creation of start-ups, and the increasing usage of IoT is driving the IT services market ahead.
Investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF (IYW) 21.9% returns over the past three months and 31.3 % over the past six months.
Despite this year’s improvements, the tech industry will likely struggle with supply chain and layoffs. According to a report from Layoffs.fyi, the total number of layoffs for 2023 based on full months to date is 168,243, with the overall number of tech layoffs this year currently exceeding the total number of tech layoffs in 2022.
Furthermore, a projected economic recession is a major concern, and tech stocks may continue to remain under pressure.
Stock to Buy:
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. The company’s Software-as-a-Service platform allows users to collaborate on content, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features.
On June 1, 2023, BOX announced that Seymourpowell, a design and innovation firm, has chosen Box for secure collaboration and improved processes. Seymourpowell, based in London, will use Box as its secure, integrated platform to manage material across its scattered workforce.
Matt Jelley, IT Manager at Seymourpowell, said, “We evaluated Box against on-premise and cloud providers, and quickly realized that Box would enable immediate productivity gains. Moving forward, we will use Box to power both internal and external collaboration with customers in a meaningful and secure way.”
On May 2, 2023, BOX introduced Box AI, a revolutionary set of technologies that incorporate advanced AI models directly into the Box Content Cloud. This integration assures that Box’s enterprise-grade security, compliance, and privacy standards are extended to this new technology.
This move places BOX in a favorable position in the current wave of AI adoption. BOX can capitalize on the increased demand for AI technology by incorporating powerful AI models into the Box Content Cloud, allowing it to deliver upgraded solutions while preserving its strong financial position.
BOX’s forward non-GAAP P/E multiple of 19.31 is 8.2% lower than the industry average of 21.04. Its forward Price/Cash Flow multiple of 13.85 is 30.5% lower than the industry average of 19.92.
BOX’s trailing-12-month levered FCF margin of 33.53% is 355.4% higher than the industry average of 7.36%. Its trailing-12-month ROTA of 3.59% is significantly higher than the industry average of 0.02%.
For the fiscal first quarter ended April 30, 2023, BOX’s revenue increased 5.6% year-over-year to $251.90 million. Its non-GAAP operating income increased 16.7% year-over-year to $57.40 million.
Its non-GAAP net income attributable to common stockholders rose 33.7% year-over-year to $47.52 million. Additionally, its non-GAAP net EPS attributable to common stockholders increased 28.1% over the prior-year period to $0.32.
The consensus revenue estimate of $1.05 billion for the year ending January 2024 represents a 6.2% increase year-over-year. Its EPS is expected to grow 24% year-over-year to $1.49 for the same period. It surpassed EPS estimates in three of four trailing quarters. BOX’s shares have gained 12.1% over the past nine months to close the last trading session at $28.73.
BOX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BOX has an A grade for Growth and Quality and a B grade for Value. It is ranked #2 out of 82 stocks in the Technology - Services industry. Click here for the additional POWR Ratings for Momentum, Stability, and Sentiment for BOX.
Stocks to Avoid:
HIVE Blockchain Technologies Ltd. (HIVE)
Headquartered in Vancouver, Canada, HIVE operates as a cryptocurrency mining company in Canada, Sweden, and Iceland. It engages in the mining and sale of digital currencies, including Ethereum, Ethereum Classic, and Bitcoin.
HIVE’s trailing-12-month EBIT margins of negative 99.29% compare with the industry average of 4.35%. Also, its trailing-12-month asset turnover ratio of 0.41x is 32.8% lower than the industry average of 0.61x.
For the fiscal third quarter that ended December 31, 2022, HIVE’s revenue from digital currency mining declined 79.2% year-over-year to $14.32 million. The company’s net loss came in at $90.01 million, compared to a net income of $51.19 million a year ago, while its loss per share came in at $1.09, compared to an EPS of $0.62 in the prior-year quarter.
Street expects HIVE’s EPS for the first quarter ending June 2023 to come in at negative $0.29. Its revenue for the same quarter is expected to decline 50.8% year-over-year to $21.75 million. It missed EPS estimates in all four trailing quarters. Over the past nine months, the stock has lost 35.3% to close the last trading session at $3.10.
HIVE’s 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 #81 in the same industry. It has an F grade for Growth and a D for Value, Stability, Sentiment, and Quality. To see additional HIVE’s ratings for Momentum, click here.
Bakkt Holdings, Inc. (BKKT)
BKKT provides a platform for crypto and redeeming loyalty points. The company’s institutional-grade technology platform offers various solutions, such as Custody, Crypto Connect, Crypto Rewards, and Crypto Payouts. Its platform also offers a range of loyalty solutions, travel solutions, and unified shopping experiences.
BKKT’s forward EV/Sales multiple of 3.64 is 25.5% higher than the industry average of 2.90. Its trailing-12-month Price/Cash Flow multiple of 1.30% is 30.11% higher than the industry average of 1%.
BKKT’s trailing-12-month ROCE margins of negative 207.51% compare with the industry average of 11.08%. Also, its trailing-12-month EBITDA margin of negative 271% compare with the industry average of 20.60%.
For the fiscal first quarter that ended March 31, 2023, BKKT’s operating loss came in at $45.40 million. Its net loss attributable to BKKT and net loss per share attributable to class A common stockholders for the same quarter came in at $14 million and $0.17, up 97.2% and 21.4% year-over-year, respectively.
BKKT’s EPS is expected to remain negative at $0.53 in the fiscal year ending December 2023. Over the past year, the stock has declined 50.4% to close the last trading session at $1.40.
BKKT’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system.
It also has an F grade for Stability and Sentiment and a D for Growth, Value, and Quality. Within the same industry, it is ranked last. Click here to see BKKT’s rating for Momentum.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
BOX shares were trading at $29.07 per share on Tuesday afternoon, up $0.34 (+1.18%). Year-to-date, BOX has declined -6.62%, versus a 12.29% 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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