Companies are actively pursuing automation solutions to enhance productivity and streamline their operations. Therefore, investors could consider buying fundamentally sound tech stocks, DocuSign, Inc. (DOCU), Box, Inc. (BOX), and RingCentral, Inc. (RNG) with explosive potential.
Businesses are showing a growing interest in technology solutions that enhance business operations and boost efficiency. Services like cloud computing, cybersecurity, and artificial intelligence are among the most in-demand. Revenue in the IT services sector is expected to grow at a CAGR of 5.8% by 2029.
Additionally, the global Software as a Service (SaaS) market is propelled by the increasing dependence on SaaS solutions that provide real-time threat intelligence and monitoring, the growing need for payment gateways and inventory management in e-commerce, and the expanding use of customer relationship management (CRM) solutions.
IMARC Group expects the global SaaS market to grow at a CAGR of 15.5% by 2032.
Given these favorable industry trends, let us dive deep into the fundamentals of the top tech stocks:
DocuSign, Inc. (DOCU)
DOCU offers electronic signature solutions internationally. The company provides an e-signature solution that enables the sending and signing of agreements, Contract Lifecycle Management that automates workflows, Document Generation streamlines the process of generating new, custom agreements, and more.
Over the past three years, DOCU’s revenue has grown at a CAGR of 20%. Also, the company’s total assets and levered free cash have increased at CAGRs of 8.4% and 19.9%, respectively, over the same period.
On June 4, DOCU announced the upcoming launch of its new Docusign Connector for SAP Ariba solutions, which is a new offering to automate workflows between Docusign CLM and SAP Ariba solutions to help businesses accelerate time to value and eliminate friction in source-to-pay agreement processes.
The new connector will be available globally starting from September. The launch reinforces DOCU’s commitment to its partnership with SAP and its vision to transform agreement processes across the source-to-pay workflow.
On May 31, DOCU acquired Lexion, a leading AI-powered agreement management company. The strategic acquisition strengthens DOCU’s Intelligent Agreement Management (IAM) position and introduces new AI-assisted capabilities to the Docusign IAM platform.
For the first quarter that ended April 30, 2024, DOCU’s total revenue increased 7.3% year-over-year to $709.64 million. Its non-GAAP gross profit rose 6.5% from the year-ago value to $582.17 million. The company’s non-GAAP income from operations of $202.09 million indicates growth of 15% from the prior year’s quarter.
In addition, the company’s non-GAAP net income came in at $172.84 million and $0.82 per share, up 15.1% and 13.9% from the prior year’s quarter, respectively.
As per the company’s second-quarter 2024 guidance, DOCU expects total revenue between $725 million and $729 million, and its subscription revenue is expected to range from $705 million to $709 million. For the full year, the company expects total revenue of $2.92 billion - $2.93 billion and subscription revenue of $2.84 billion to $2.85 billion.
Analysts expect DOCU’s revenue and EPS for the second quarter (ended July 2024) to increase 5.8% and 11.8% year-over-year to $727.23 million and $0.80, respectively. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters.
DOCU’s stock has surged 32.4% over the past nine months and 14.5% over the past year to close the last trading session at $56.46.
DOCU’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
DOCU has an A grade for Growth and Quality and a B for Value. It is ranked first among 18 stocks in the A-rated Software - SAAS industry.
Click here to access the additional DOCU ratings (Momentum, Stability, and Sentiment).
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 powerful enhancements to BOX AI, including unlimited queries for Enterprise Plus customers, integration with GPT-4, and support for more file types. New features are expected to improve content management and workflow efficiency using advanced AI capabilities.
BOX’s revenue grew at a CAGR of 10% over the past three years, and its EBITDA grew at a CAGR of 23% during the same period.
In terms of the trailing-12-month Return on Total Capital, BOX’s 6.99% is 146.2% higher than the 2.84% industry average. Likewise, its 11.73% trailing-12-month Return on Total Assets is 440% higher than the industry average of 2.17%. Its 0.92x trailing-12-month asset turnover ratio is 48.9% 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.
BOX expects its revenue for the quarter ended July 31, 2024, to be between $268 million and $270 million, showing a 3% increase year-over-year. Also, its non-GAAP diluted net income per share is expected to be between $0.40 and $0.41.
Analysts expect BOX’s EPS and revenue for the quarter ended July 31, 2024, to increase 12.5% and 3% year-over-year to $0.41 and $269.20 million, respectively. It surpassed the revenue and EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 6.8% to close the last trading session at $28.01.
BOX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and Growth and a B for Value. BOX is ranked #8 in the Technology - Services industry.
Beyond what is stated above, we’ve also rated BOX for Sentiment, Stability, and Momentum. Get all BOX ratings here.
RingCentral, Inc. (RNG)
RingCentral, along with its subsidiaries, provides cloud communications, video meetings, collaboration, and contact center software-as-a-service solutions worldwide. The company’s products include RingCentral Message Video Phone, RingCentral Contact Center, RingCX, RingCentral Video, and RingCentral Professional Services, serving various industries.
Over the past three years, RNG’s revenue has grown at a CAGR of 24.2%. Also, the company’s total assets and levered free cash have increased at CAGRs of 122.6% and 41.1%, respectively, over the same period.
In terms of the trailing-12-month gross profit margin, RNG’s 70.24% is 41.4% higher than the 49.68% industry average. Likewise, its 24.68% trailing-12-month levered FCF margin is 137.3% higher than the 10.40% industry average. Furthermore, its 1.22x trailing-12-month asset turnover ratio is 96.9% higher than the 0.62x industry average.
For the second quarter that ended June 30, 2024, RNG’s total revenues increased 93.9% year-over-year to $592.91 million. Its non-GAAP income from operations rose 18.9% from the year-ago value to $124.19 million. The company’s non-GAAP net income of $86.20 million indicates growth of 7.7% from the prior year’s quarter.
In addition, the company’s non-GAAP net income per share came in at $0.91, up 9.7% from the prior year’s quarter.
Analysts expect RNG’s revenue and EPS for the third quarter (ending September 2024) to increase 7.9% and 18.2% year-over-year to $602.17 million and $0.92, respectively. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters.
RNG’s stock has surged 11.7% over the past nine months and 13.4% over the past year to close the last trading session at $33.96.
RNG’s POWR Ratings reflect bright prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
RNG has an A grade for Growth and Value and a B for Quality. It is ranked #6 out of 39 stocks in the B-rated Software - Business industry.
In addition to the POWR Ratings highlighted above, one can access RNG’s ratings for Momentum, Stability, and Sentiment here.
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DOCU shares were trading at $56.67 per share on Friday afternoon, up $0.21 (+0.37%). Year-to-date, DOCU has declined -4.68%, versus a 17.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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