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The technology industry stands out as a cornerstone of modern economies, and the global tech market is projected to reach $11.5 trillion by 2026, expanding at a 7.8% compound annual growth rate. Propelling this momentum are swift advances in fields like artificial intelligence (AI), cloud computing, and cybersecurity, alongside an increasing demand for digital transformation across industries.
In the fast-paced tech arena, standout stocks like Dayforce Inc (DAY), with its robust human capital management (HCM) platform, Sabre Corporation (SABR), a leader in travel technology, and Paylocity Holding Corporation (PCTY), offering advanced payroll and HR solutions, exemplify the tech industry's diversity and growth potential.
These stocks not only offer compelling growth opportunities for investors seeking tech investments, but they’re also among the most reasonably valued stocks in the outperforming sector, according to Morningstar data. Plus, Wall Street analysts agree - these names have double-digit upside potential over the next 12 months.
Tech Stock #1: Dayforce
Founded in 1992, Minneapolis-headquartered Dayforce Inc (DAY), formerly Ceridian, revolutionizes human resources with a global presence spanning the U.S., Canada, Europe, the Middle East, Africa, and Asia-Pacific. Dayforce offers a cutting-edge cloud HCM platform integrating HR, payroll, tax, workforce management, benefits, and talent intelligence.
Serving diverse needs from small businesses to large enterprises, Dayforce also provides payroll services and professional support, marketed through direct and third-party channels, underpinning its $8 billion market cap.
Shares of Dayforce have plunged 25.4% in 2024. The stock currently trades 33.8% below its 52-week high of $75.53, set on Sept. 12.
Given the stock's underperformance, it is currently trading at 58.11 times forward earnings and 5.27 times sales, significantly lower than its closest peers, like Workday, Inc. (WDAY), which trades at 116.34x and 7.65x, respectively.
Shares of DAY dipped 6% on May 1, despite better-than-expected Q1 earnings results. Revenue rose 16.4% year over year to $431.5 million, beating estimates by 1.3%. Net income per share of $0.43, up 38.7% annually, sailed past projections by 2.2%.
As of March 31, Dayforce boasted 6,575 customers, marking a 6.4% year-over-year increase. Notably, Dayforce's recurring revenue per customer surged by 19.2% to $150,362 over the trailing 12 months ending March 31.
However, the stock fell due to Dayforce's disappointing Q2 revenue and EBITDA guidance, which indicated a slowdown in revenue growth. The company projects Q2 revenue between $414 million and $419 million, indicating 13.8% annual growth, down from 21.5% a year ago. Adjusted EBITDA is expected to rise 12.3% to $108 million to $113 million, down from 59.2% growth last year.
Management backed its full-year forecast for revenue between $1.73 billion and $1.74 billion and adjusted EBITDA between $484 million and $499 million. Analysts tracking Dayforce expect EPS to grow 35.4% in fiscal 2024 to $0.88 and 27.3% in fiscal 2025 to $1.12.
Dayforce has carved out a niche in the software application sector, creating a narrow moat, according to Morningstar analyst Emma Williams, who views Dayforce as a pivotal player in the HCM market, capitalizing on agile cloud solutions that outperform legacy systems. Despite competitive pressures, Dayforce's strategic focus on larger enterprises and continuous innovation, such as its Dayforce Wallet, signals strong revenue potential, says Williams.
Moreover, Morningstar projects Dayforce stock to hit $86 per share, which implies a potential upside of 71.9%.
DAY has a consensus “Moderate Buy” rating overall. Of the 16 analysts covering it, eight recommend a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining seven advise a “Hold.”
The average analyst price target for Dayforce is $72.80, indicating a potential upside of 45.5%.
Stock #2: Sabre Corporation
Founded in 2006, Texas-based Sabre Corporation (SABR) is a global software and technology powerhouse for the travel industry. Operating through its Travel Solutions and Hospitality Solutions segments, Sabre connects travel suppliers with buyers via its extensive marketplace.
Valued at $993 million by market cap, the company provides an array of SaaS and hosted solutions, including reservation systems, commercial and operations products, and data-driven intelligence. Serving airlines, hotels, car rentals, and more, Sabre is at the forefront of innovation, revolutionizing how the world travels.
Shares of Sabre are down 21.2% over the past 52 weeks, and have lost 40% on a YTD basis. The stock currently trades 54.2% below its 52-week high of $5.76.
Priced at 0.34 times forward sales, the stock trades at a discount to the industry median and its own five-year average.
Sabre reported better-than-expected Q1 earnings results on May 2. Its revenue rose 5% annually to $782.9 million, driven by a solid travel supplier mix and more global bookings.. The company also managed to narrow its adjusted loss per share by 88.9% year over year to a narrower-than-forecast $0.02.
During the quarter, Sabre locked in and extended deals with major airlines like LATAM, Southwest (LUV), and Emirates, setting the stage for steady revenue growth. Looking ahead, Sabre expects fiscal year 2024 revenue to be approximately $3.04 billion and adjusted EBITDA to be around $520 million.
Analysts tracking SABR expect the company’s loss to narrow 60.6% to $0.28 per share in fiscal 2024 before swinging to a GAAP profit of $0.13 per share in fiscal 2025.
Morningstar analyst Dan Wasiolek expects Sabre to maintain its global distribution systems (GDS) dominance over the next decade. Despite economic uncertainties and fluctuating corporate travel demands, the analyst says Sabre's robust network of airline content and technology solutions positions it strongly in the market. The firm has a fair value of $5 per share for SABR, which implies an upside potential of a whopping 89.4% from the current price levels.
SABR stock has a consensus “Hold” rating overall. Out of the six analysts offering recommendations for the stock, one suggests a “Strong Buy,” and the remaining five gives a “Hold” rating.
The average analyst price target of $3.42 suggests that the stock has an upside potential of 29.5% to the current price levels.
Stock #3: Paylocity Holding
Paylocity Holding Corporation (PCTY), founded in 1997, pioneers cloud-based HCM and payroll software solutions across the U.S. Paylocity simplifies payroll and compliance with its Payroll and Tax Services, offering seamless automation and management.
Its comprehensive suite includes talent management, time and attendance tracking, and employee experience solutions tailored for diverse sectors like business services, healthcare, and technology. With a commitment to innovation and customer satisfaction, Paylocity serves both for-profit and nonprofit organizations, empowering them with cutting-edge HR technology to streamline operations and enhance workforce management.
Shares of Paylocity are down 25.4% over the past 52 weeks and 16.3% in 2024. The stock trades 40.2% below its 52-week high of $230.52, set on July 31.
In terms of valuation, the stock is trading at 35.25 times forward earnings and 6.69 times sales, much lower than its own five-year averages.
Shares of Paylocity rose nearly 12% on May 3 after the company reported fiscal Q3 earnings that surpassed Wall Street’s forecasts on both the top and bottom lines. Revenue climbed 18.1% year over year to $401.3 million, fueled by 17% growth in recurring and other revenue. EPS of $2.21, was up 27% annually and exceeded projections by 11.7%.
As of March 31, Paylocity boasted $492.7 million in cash and equivalents, and a debt-free balance sheet. This, coupled with the board's approval of a $500 million share repurchase program, reflects robust profitability and strong cash flow.
Paylocity expects fiscal Q4 revenue to range between $347.8 million and $351.8 million, indicating approximately 13% year over year growth. The company anticipates adjusted EBITDA to be between $104.1 million and $107.1 million for the quarter.
For the full year, Paylocity projects fiscal 2024 revenue to reach between $1.393 billion and $1.397 billion, representing about 19% annual growth. Adjusted EBITDA is expected to be between $489.5 million and $492.5 million.
Analysts tracking Paylocity expect the company’s profit to reach $3.95 per share in fiscal 2024, up 47.9% year over year, and rise another 7.1% to $4.23 per share in fiscal 2025.
Morningstar analyst Williams views Paylocity as well-positioned in the payroll and HCM sector, citing its comprehensive platform that integrates payroll with customizable add-on modules like talent management and benefits administration. Williams predicts Paylocity will capitalize on industry consolidation and rising demand for outsourced HR solutions, potentially increasing its market share by leveraging module adoption and strategic acquisitions to meet evolving client needs.
Morningstar has a fair value estimate of $205 per share for PCTY, suggesting a potential upside of 48.6%.
Paylocity stock has a consensus “Moderate Buy” rating overall. Out of the 18 analysts covering the stock, 10 suggest a “Strong Buy,” two advise a “Moderate Buy” rating, and the remaining six recommend a “Hold.”
The average analyst price target of $192.06 indicates a potential upside of 39.2% from the current price levels.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
