The tech industry is poised for a rapid growth, owing to the rising technological innovations in artificial intelligence, cloud computing, and cybersecurity, coupled with growing IT expenditure.
Given this backdrop, investors could consider buying tech stocks such as Informatica Inc. (INFA), Dropbox, Inc. (DBX), and Clear Secure, Inc. (YOU), with strong upside potential, currently trading under $30.
The tech industry's rapid growth is driven by constant innovations and advanced products, meeting the increasing digital needs across various sectors. According to Gartner, the global IT spending is expected to reach $5.06 trillion by 2024, showing a significant 8% increase from the previous year. This puts worldwide IT spending on track to exceed $8 trillion well before the end of the decade.
Incorporation of digital technologies into operations and the rising popularity of digital services have boosted the demand for tech services. Moreover, the U.S. IT services market is projected to hit $630.76 billion by 2029, growing at a 6.5% CAGR.
The global business landscape is embracing cloud-based software applications at a fast pace, leading to significant cost savings, enhanced flexibility, and scalability. The reliability and ease of deployment of these applications have propelled the growth of the Software-as-a-Service (SaaS) market. The U.S. SaaS market is projected to grow at a CAGR of 5.4%, reaching $186 billion by 2028.
The tech industry is rapidly growing as businesses and individuals increasingly rely on digital technologies. The demand for software security solutions has skyrocketed to safeguard digital systems, applications, and data from cyber threats. Tech companies are helping defend against evolving cyber-attacks and ensuring the integrity of digital assets. The U.S. cybersecurity market is expected to reach $126.57 billion by 2029, exhibiting an 8.1% CAGR.
Considering these conducive trends, let’s examine the fundamentals of the three featured tech stocks.
Informatica Inc. (INFA)
INFA develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-vendor, multi-cloud, and hybrid systems at enterprise scale worldwide.
On June 10, 2024, INFA announced an expanded partnership with Databricks with new product capabilities and offerings, bringing together the full range of INFA’s AI-powered Intelligent Data Management Cloud platform capabilities within the Databricks Data Intelligence Platform.
The expanded partnership will enable customers to deploy enterprise-grade Generative AI applications at scale, based on a foundation of high-quality, trusted data and metadata.
On June 4, 2024, INFA announced the launch of Enterprise Data Integrator and Cloud Data Access Management for Snowflake. These new offerings on the Snowflake AI Data Cloud will enable organizations to develop Generative AI applications, establish streamlined data integration and provide a centralized, policy-based access management, simplifying data governance and ensuring control over data usage.
INFA’s trailing-12-month gross profit margin of 79.72% is 60.7% higher than the industry average of 49.61%. Similarly, its trailing-12-month EBITDA margin and levered FCF margin of 15.70% and 19.45% are 62.5% and 92.3% higher than the industry averages of 9.66% and 10.11%, respectively.
INFA’s total revenues for the fiscal first quarter that ended March 31, 2024, increased 6.3% year-over-year to $388.61 million. Its adjusted EBITDA stood at $111.47 million, up 25.2% over the prior-year quarter. In addition, its non-GAAP net income rose 55.1% from the year-ago quarter to $69.22 million. Also, its non-GAAP net income per share grew 46.7% year-over-year to $0.22.
Analysts expect INFA’s revenue and EPS for the quarter ending June 30, 2024, to increase 7.1% and 28.5% year-over-year to $402.59 million and $0.22, respectively. The company surpassed the Street revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 64.5%, closing the last trading session at $29.86. Wall Street analysts expect the stock to hit $38.50 in the near term, indicating a potential upside of 28.9%.
INFA’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
INFA has a B grade for Growth, Sentiment, and Quality. It is ranked #5 out of 18 stocks in the A-rated Software - SAAS industry. Click here to see INFA’s Value, Momentum, and Stability ratings.
Dropbox, Inc. (DBX)
DBX provides a content collaboration platform worldwide. The company's platform allows individuals, families, teams, and organizations to collaborate and sign up for free through its website or app, as well as upgrade to a paid subscription plan for premium features.
On April 24, 2024, DBX announced new security, organization, and sharing features to give teams the control, flexibility, and speed to get work done from anywhere. Using the lessons learned from Virtual First, the Dropbox playbook for distributed work, these tools were designed to help teams get work done quickly and seamlessly from DBX.
DBX’s trailing-12-month Return on Total Assets of 18.48% is considerably higher than the industry average of 1.64%. Likewise, its trailing-12-month EBIT margin and net income margin of 17.56% and 20.50% are 273.1% and 669.1% higher than the industry averages of 4.71% and 2.67%, respectively.
For the fiscal first quarter that ended March 31, 2024, DBX’s revenue and non-GAAP gross profit stood at $631.30 million and $533.80 million, up 3.3% and 6.1% year-over-year, respectively. For the same quarter, its non-GAAP net income and net income per share increased 34.6% and 38.1% over the prior-year quarter to $196.70 million and $0.58, respectively.
Street expects DBX’s EPS and revenue for the quarter ending June 30, 2024, to increase 2.6% and 1.2% year-over-year to $0.52 and $630.01 million, respectively. The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters.
DBX has gained marginally intraday, closing the last trading session at $21.70. Wall Street analysts expect the stock to reach $27.75 in the near term, indicating a potential upside of 27.9%.
DBX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Value. It is ranked #4 out of 79 stocks in the Technology - Services industry. Get DBX’s Momentum, Stability, and Sentiment ratings here.
Clear Secure, Inc. (YOU)
YOU operates a secure identity platform under the CLEAR brand name primarily in the U.S. Its secure identity platform is a multi-layered infrastructure consisting of front-end, including enrollment, verification, and linking, as well as back-end.
On June 5, 2024, YOU continued to expand locations to enroll and renew consumers in the Trusted Traveler program by opening 7 new locations. The launch of the enrollment location at these 7 airports represents the ongoing expansion of YOU's national TSA PreCheck enrollment footprint.
YOU trailing-12-month asset turnover ratio of 0.63x is 1.9% higher than the industry average of 0.61x. Its trailing-12-month Return on Common Equity and Return on Total Capital of 22.54% and 7.10% are 448% and 172% higher than the industry averages of 4.11% and 2.61%, respectively.
YOU’s revenue for the fiscal first quarter that ended March 31, 2024, amounted to $179.05 million, up 35.3% year-over-year. Its free cash flow grew 51.1% from the year-ago quarter to $77.57 million. In addition, its adjusted net income stood at $42.10 million and $0.28 per share, up 377.5% and 366.7% over the prior-year quarter, respectively.
For the quarter ending June 30, 2024, YOU’s revenue and EPS are expected to increase 22.7% and 72.6% year-over-year to $183.84 million and $0.26, respectively. It surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 5.7% over the past month to close the last trading session at $17.92. Wall Street analysts expect the stock to reach $24.29 in the near term, indicating a potential upside of 35.6%.
YOU’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
YOU has an A grade for Growth and Value and a B for Quality. Within the B-rated Software - Security industry, it is ranked #3 out of 22 stocks. Click here for the additional POWR Ratings of YOU (Momentum, Stability, and Sentiment).
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INFA shares were trading at $29.67 per share on Thursday afternoon, down $0.19 (-0.64%). Year-to-date, INFA has gained 4.51%, versus a 14.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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