The technology industry is flourishing, fueled by digital transformation and the increasing adoption of cloud-based IT services. Thus, investors could consider adding fundamentally sound tech stocks, Knowles Corporation (KN), TaskUs, Inc. (TASK), and CSP Inc. (CSPI), to the portfolio, which are currently trading under $20.
The demand for IT services is steadily increasing worldwide, driven by the growing popularity of cloud-based software and the rising concern to automate business processes. Since 2022, small and medium-sized enterprises (SMEs) have rapidly adopted cloud-based IT services, which are projected to capture over 80% of the market share by 2025.
The global IT services market is expected to grow at a CAGR of 9.5% by 2031.
Moreover, the increasing penetration of smartphones, TVs, laptops, and other devices is anticipated to drive consumer electronic market growth, as well as the adoption of consumer goods like automated home appliances and smartphones.
Considering these factors, let’s take a look at the fundamentals of the three tech stock picks.
Knowles Corporation (KN)
KN offers capacitors, Radio Frequency (RF) filtering products, balanced armature speakers, micro-acoustic microphones, and audio solutions. It operates through Precision Devices; Medtech & Specialty Audio; and Consumer MEMS Microphones segments.
On June 13, 2024, KN announced a collaboration with Audiodo, a personalized sound optimization technology pioneer. KN balanced armature (BA) drivers and Audiodo's sound personalization technology integrate seamlessly to enable manufacturers of over-the-counter (OTC) hearing aids and true wireless stereo (TWS) earbuds, like Meizu’s new LIVE AI Noise Cancelling Hi-Fi Earbuds, to achieve customized, high-fidelity listening experiences.
KN’s forward EV/EBITDA of 10.59x is 27.2% lower than the industry average of 14.54x. Its forward EV/EBIT multiple of 12.59 is 38.6% lower than the industry average of 20.51.
In the first quarter that ended March 31, 2024, KN’s revenues increased 36.1% year-over-year to $196.40 million. Its non-GAAP gross profit grew 37.3% from the year-ago value to $74.70 million. Its non-GAAP net earnings and non-GAAP EPS were $18.60 million and $0.20, indicating growth of 264.7% and 300% from the previous year’s quarter, respectively.
In addition, the company’s adjusted EBITDA increased 95.4% year-over-year to $33.80 million.
According to the outlook for the second quarter of 2024, KN expects non-GAAP revenues to be between $199 million and $209 million and non-GAAP EPS between $0.22 and $0.26.
Street expects KN’s revenue to increase 18.1% year-over-year to $204.28 million for the second quarter ending June 2024. The company’s EPS for the same quarter is expected to grow 4.4% year-over-year to $0.24. Also, KN surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Over the past three months, the stock has gained 13.3% to close the last trading session at $17.94.
KN’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
KN has a B grade for Quality, Value, and Sentiment. It is ranked #3 out of 43 stocks in the Technology - Electronics industry.
Click here to access the additional KN ratings (Momentum, Stability, and Growth).
TaskUs, Inc. (TASK)
TASK provides digital outsourcing services for companies. It offers a digital customer experience that consists of omnichannel customer care services primarily delivered through non-voice digital channels and other solutions, including experience and customer care services for new product or market launches and customer acquisition solutions.
On June 3, 2024, TASK and AI-powered product support platform Mavenoid announced their strategic partnership. Together, TASK and Mavenoid would combine expertise in AI and personalized product support to optimize next-generation, personalized self-help product support solutions trusted by some of the world’s leading consumer brands.
TASK’s forward EV/EBITDA of 7.69x is 34.2% lower than the industry average of 11.69x. Its forward EV/EBIT multiple of 17.19 is 5.1% lower than the industry average of 16.36.
For the first quarter ended March 31, 2024, TASK reported service revenue at $227.47 million. Its adjusted EBITDA came in at $50.61 million. The company’s adjusted net income stood at $27.27 million and $0.30 per share. In addition, as of March 31, 2024, the company’s total assets stood at $874.51 million, compared to $864.20 million as of December 31, 2023.
Analysts expect TASK’s revenue for the third quarter (ending September 2024) to increase 3.9% year-over-year to $234.37 million, while its EPS is expected to grow 1.3% year-over-year to $0.32, respectively. In addition, the company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past month, the stock has gained 26.8% to close the last trading session at $16.88.
TASK’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has a B grade for Quality and Growth. TASK is ranked #7 out of 76 stocks in the Technology - Services industry.
Beyond what is stated above, we’ve also rated TASK for Stability, Sentiment, Value, and Momentum. Get all TASK ratings here.
CSP Inc. (CSPI)
CSPI develops and markets IT integration solutions and security products, manages IT services and cloud services, and provides purpose-built network adapters and cluster computer systems for commercial and defense customers worldwide. It operates in two segments: Technology Solutions and High Performance Products.
CSPI’s trailing-12-month Price/Sales of 2.13x is 28.7% lower than the industry average of 2.98x. Its forward EV/Sales multiple of 1.92 is 38.2% lower than the industry average of 3.10.
CSPI’s total sales for the second quarter that ended March 31, 2024, came in at $13.71 million, up 3.3% year-over-year. Its operating income rose 420.7% year-over-year to $1.23 million. Its net income increased 394.7% year-over-year to $1.59 million, and its net income per share grew 433.3% over the previous year’s quarter to $0.16.
Over the past three months, the stock gained 13.6%, closing the last trading session at $14.85.
CSPI’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Quality and Growth. CSPI is ranked #23 in the Technology - Services industry.
In addition to the POWR Ratings highlighted above, one can access CSPI’s ratings (Value, Momentum, Stability, and Sentiment) here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
KN shares were trading at $18.23 per share on Wednesday morning, up $0.29 (+1.62%). Year-to-date, KN has gained 1.79%, versus a 16.75% 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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