Macroeconomic headwinds have compelled companies to seek ways to transition to cutting-edge technologies and digital transformation in the communication sector, which could be utilized to enhance business strength, network, and customer experience.
Against the backdrop of the telecom industry’s constantly evolving nature to meet the changing consumer requirements in this fast-paced world, let us look at some quality stocks InterDigital, Inc. (IDCC), IDT Corporation (IDT), Ooma, Inc. (OOMA), and Spok Holdings, Inc. (SPOK), which could be wise portfolio additions now.
Like every other sector in the economy, the telecom sector is not immune from the various economic challenges. However, the continued importance of connectivity and delivering value to consumers are poised to keep the industry buoyed.
Over the past decade, the requirement for low latency, high-speed internet has been soaring, especially since the pandemic struck. 5G technology has been picking up pace amid the hybrid work lifestyle and technological advancements.
The global 5G fixed wireless access market is expected to reach $342.83 billion by 2030, registering a CAGR of 39.9% from 2023 to 2030. In addition, the global telecommunication services market is estimated to reach $2.56 trillion by 2031, growing at a CAGR of 5.1% from 2022 to 2031.
Given the solid prospects of the industry, investing in stocks IDCC, IDT, OOMA, and SPOK, could be wise now.
InterDigital, Inc. (IDCC)
IDCC designs and develops technologies to enable and enhance wireless communications. The company provides technology solutions, including 3G, 4G, 5G, and IEEE 802-related products. It also provides video coding and transmission technologies; and engages in the research and development of artificial intelligence.
On May 15, IDCC signed a new patent license agreement with Alps Alpine Co., Ltd., and the deal covers Alps Alpine’s range of devices under IDCC’s standard essential patents related to HEVC.
In addition to demonstrating how IDCC’s innovation is applied across a range of devices, its long history of research in the video space implies its asset portfolio strength in HEVC and other leading codecs. The collaboration should bode well for IDCC.
The company completed its modified Dutch auction tender offer for 2.7 million share repurchases for an aggregate cost of $199.9 million, excluding fees, expenses, and excise tax. The company repurchased $24.7 million, or 0.3 million shares, from April 1, 2023, through April 30, 2023.
On March 29, IDCC’s board of directors declared a regular quarterly dividend of $0.35 per share on its common stock, which was paid to the shareholders on April 26, 2023. This cumulates to an annual dividend of $1.40 per share and yields 1.67% on the current share price. Its four-year average dividend yield is 2.33%.
In terms of forward EV/EBITDA, IDCC is trading at 6.63x, 52% lower than the industry average of 13.81x. Its forward non-GAAP P/E multiple of 10.69 is 48.7% lower than the 20.85 industry average.
IDCC’s total revenue has increased 99.7% year-over-year to $202.37 million in its first quarter, which ended March 31, 2023. Its income from operations rose 295.1% year-over-year to $119.26 million. Its adjusted EBITDA improved 179.5% year-over-year to $154.81 million.
In addition, the company’s non-GAAP net income and non-GAAP net income per share were $123.62 million and $4.21, registering increases of 301.3% and 325.3% year-over-year, respectively.
Analysts expect IDCC’s revenue and EPS for its fiscal year ending December 2023 to come in at $522.10 million and $7.85, indicating a 14.1% and 107.9% increase year-over-year, respectively. The company topped the consensus revenue in each of the trailing four quarters, which is impressive.
Over the past year, shares of IDCC have gained 37.4%. Over the past month, it grew 19.6% to close its last trading session at $83.51.
IDCC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IDCC has a B grade for Growth, Value, Sentiment, and Quality. Within the Telecom – Domestic industry, it is ranked #2 of 19 stocks.
To see additional POWR Ratings (Momentum and Stability) for IDCC, click here.
IDT Corporation (IDT)
IDT provides communications and payment services in the United States and internationally. The company operates through three segments: Fintech; net2phone; and Traditional Communications.
On April 4, net2phone, IDT’s leading cloud communications provider, announced a strategic partnership with Bridgepointe, a leading tech advisory firm.
Through the partnership, Bridgepointe would offer its mid-market and enterprise clients net2phone’s cloud communications solutions to enhance user experience across channels, enhancing IDT’s growth prospects.
In terms of trailing-12-month EV/Sales, IDT is trading at 0.55x, 70.4% lower than the industry average of 1.86x. Its trailing-12-month Price/Sales of 0.66x is 42% lower than the industry average of 1.14x.
IDT’s trailing-12-month ROCE, ROTC, and ROTA of 27.32%, 22.75%, and 9.52% are 744.3%, 494.3%, and 588.8% higher than the industry averages of 3.24%, 3.83%, and 1.38%, respectively.
IDT’s revenues came in at $313.94 million for the fiscal second quarter that ended January 31, 2023, while its income from operations grew 31.6% year-over-year to $18.18 million.
The net income and earnings per share attributable to IDT common stockholders came in at $14.62 million and $0.57, up 95.3% and 103.6% from the year-ago quarter. Also, its adjusted EBITDA amounted to $23.40 million, up 25.1% year-over-year.
The stock has gained 20.5% over the past year and 21.8% over the past six months to close the last trading session at $32.41.
IDT’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Stability. It is ranked #4 in the same industry.
One can access additional ratings for Momentum, Sentiment, and Quality for IDT here.
Ooma, Inc. (OOMA)
OOMA provides communications services and related technologies for businesses and consumers in the United States and Canada. The company’s products and services include Ooma Office, Ooma Office Pro, Ooma Connect, Ooma Enterprise, Ooma AirDial, Ooma Premier, and Ooma Telo Air.
In terms of forward EV/Sales, OOMA is trading at 1.30x, 26.3% lower than the industry average of 1.76x.
OOMA’s trailing-12-month gross profit margin of 63.61% is 27.8% higher than the 49.76% industry average. Its trailing-12-month asset turnover ratio of 1.79x is 255.6% higher than the 0.50x industry average.
For the fiscal first quarter that ended April 30, 2023, OOMA’s total revenue increased 12.9% year-over-year to $56.85 million, while its gross profit grew 12.5% from the year-ago quarter to 35.95 million. Its adjusted EBITDA for the same quarter stood at $4.79 million, representing a 24.2% year-over-year increase.
Moreover, for the same quarter, non-GAAP net income and non-GAAP net income per share stood at $4.01 million and $0.16, up 33.7% and 33.3% year-over-year, respectively.
OOMA’s CEO, Eric Stang, said, “Looking forward, we intend to continue to invest in our key strategic initiatives and the development of new partnerships to drive profitable growth."
For the full fiscal year 2024, OOMA expects its total revenue in the range of $235.5 million to $238.5 million. Also, its non-GAAP net income is expected to come in the range of $14.5 million to $16.5 million, while non-GAAP net income per share is expected to be between $0.55 and $0.63.
The consensus revenue and EPS estimate of $57.67 million and $0.14 for the fiscal second quarter ending July 2023 indicate 9.5% and 18.1% increases year-over-year, respectively. It surpassed EPS and revenue estimates in all four trailing quarters.
Over the past month, the stock has lost marginally to close the last trading session at $12.70.
OOMA’s POWR Ratings reflect a promising outlook. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has a B for Growth, Value, Stability, and Sentiment. It is ranked first in the same industry.
Beyond what has been stated above, we’ve also rated OOMA for Momentum and Quality. Get all OOMA ratings here.
Spok Holdings, Inc. (SPOK)
Healthcare communications establishment SPOK offers unified clinical communication and collaboration solutions comprising call center operations, clinical alerting and notifications, and mobile communications to care teams.
The company declared a regular quarterly dividend of $0.3125 per share, payable to stockholders on June 23, 2023. This cumulates to an annual dividend of $1.25 per share and yields 9.23% on the current price level.
Its four-year average dividend yield is 7.12%. The company’s dividend payments have grown at a 35.7% CAGR over the past three years and a 20.1% CAGR over the past five years.
SPOK’s CEO, Vincent D. Kelly, said, “We look forward to continued success in the remainder of the year and believe our extensive experience operating our established communication solutions will create significant value for stockholders by maximizing revenue and cash flow generation."
In terms of trailing-12-month P/E and EV/Sales, SPOK is trading at 7.90x and 1.77x, 59.4% and 3.2% lower than the industry averages of 19.47x and 1.82x, respectively.
SPOK’s trailing-12-month gross profit margin of 68.49% is 37.6% higher than the 49.76% industry average. Its trailing-12-month asset turnover ratio of 0.58x is 14.6% higher than the 0.50x industry average.
For the fiscal first quarter that ended March 31, 2023, SPOK’s revenue stood at $33.18 million. Its operating income stood at $4.72 million, compared to an operating loss of $8.67 million in the year-ago quarter. Its adjusted EBITDA came in at $6.90 million for the same quarter, compared to a negative adjusted EBITDA of $2.12 million in the prior-year quarter.
For the first quarter that ended March 31, 2023, SPOK’s net income came in at $3.12 million, compared to a net loss of $7.21 million in the prior-year quarter, while the net income per common share came in at $0.15, compared to net loss per common share of $0.37 in the year-ago quarter.
Analysts expect SPOK’s EPS for the fiscal second quarter ending June 2023 to grow 70% from the prior-year period to $0.17. The company’s revenue for the same quarter is expected to come in at $33.60 million.
The stock has gained 77.7% over the past year and 54% over the past six months to close the last trading session at $12.58.
SPOK’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Growth and Quality. Within the same industry, it is ranked #3.
Click here to see additional ratings of SPOK for Value, Momentum, Stability, and Sentiment.
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IDCC shares were trading at $82.60 per share on Thursday morning, down $0.91 (-1.09%). Year-to-date, IDCC has gained 68.75%, versus a 8.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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