Rapid digitization initiatives across various industries have driven significant growth for the tech sector. Businesses are utilizing advanced tech-based solutions to boost their capabilities. With the Federal Reserve indicating interest rate cuts this year, the tech industry could stand to benefit.
Amid this backdrop, investors could consider adding fundamentally strong tech stocks Wipro Limited (WIT), Proto Labs, Inc. (PRLB), and Bel Fuse Inc. (BELFB) to their portfolios.
Before diving deeper into the fundamentals of these stocks, let’s understand what’s driving the tech industry’s prospects.
The technology industry continues to perform well due to its consistent innovations. Businesses are harnessing the power of technology to gain an edge over their competitors. The adoption of advanced tech solutions is helping companies to enhance their efficiency and flexibility and streamline their processes.
Gartner expects global IT spending to rise 6.8% year-over-year to $5 trillion this year. Gartner’s Distinguished VP analyst John-David Lovelock said, “Enterprises continue to find more uses for technology – IT has moved out of the back office, through the front office and is now revenue producing, until there is a plateau for how and where technology can be used in an enterprise, there cannot be a plateau in enterprise IT spending.”
Due to the increasing complexity of business operations, enterprises are outsourcing non-core processes and putting their focus on core competencies. Outsourcing is gaining immense popularity as businesses look to achieve a competitive edge by focusing their efforts on what they do best.
Widespread cloud migration, growing adoption of emerging technologies, and the high demand for cybersecurity solutions are driving the demand for tech services. The IT outsourcing market is projected to grow at a CAGR of 5.5% to reach $806.53 billion by 2029.
Furthermore, technology now plays a crucial role in sectors like healthcare, automotive, industrial applications, etc. As devices become smarter and more interconnected through the integration of technologies such as artificial intelligence (AI) and the Internet of Things (IoT), the demand for cutting-edge electronic components is growing. The global electronic components market is expected to grow at a CAGR of 6.8% to reach $368.40 billion by 2032.
Meanwhile, with the advances in technology, businesses are integrating 3D printing into their capabilities, as it allows them to reduce production time, save costs, reduce waste, improve workflows, and help with customization. The global 3D printing market is projected to grow at a CAGR of 24.3% to reach $83.90 billion by 2029.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 50.6% returns over the past year.
Considering these conducive trends, let’s take a look at the fundamentals of the featured tech stocks.
Wipro Limited (WIT)
Based in Bengaluru, India, WIT is a global information technology, consulting, and business process services company. It operates through three segments: IT Services, IT Products, and India State Run Enterprise Services (ISRE). The company also provides cybersecurity consulting services.
On December 12, 2023, WIT announced that it entered into a new agreement with RSA, a leading general insurance company. WIT will help accelerate RSA’s migration to the cloud and build a compliant, secure, and scalable IT infrastructure. The three-year engagement builds on WIT and RSA’s existing relationship, which began in 2016.
WIT’s Managing Director UK & Ireland Omkar Nisal said, “We are proud to extend our engagement with RSA. Under our enhanced scope, we will accompany them on their modernization journey by addressing their technology and regulatory needs. Through cloud technology and industry-leading cybersecurity frameworks, we will further strengthen and scale RSA’s business.”
“Our teams are excited to continue our work, always innovating and driving modernization to realize RSA’s ambitions,” he added.
In terms of the trailing-12-month net income margin, WIT’s 12.44% is 510.2% higher than the 2.04% industry average. Likewise, its 18.21% trailing-12-month EBITDA margin is 98% higher than the industry average of 9.20%. Furthermore, the stock’s 0.79x trailing-12-month asset turnover ratio is 27.6% higher than the industry average of 0.62x.
For nine months ended December 31, 2023, WIT’s revenues rose 0.4% year-over-year to ₹675.52 billion ($8.12 billion). The company’s gross profit increased 5.8% over the prior-year period to ₹201.24 billion ($2.42 billion). Its results from operating activities stood at ₹100.73 billion ($1.21 billion). In addition, its profit for the period came in at ₹82.54 billion ($992.95 million). Also, its EPS came in at ₹15.42, representing an increase of 2.3% year-over-year.
Street expects WIT’s EPS for fiscal 2024 to increase 0.7% year-over-year to $0.25. Its revenue for the quarter ending September 30, 2024, is expected to increase 4% year-over-year to $2.81 billion. Over the past three months, the stock has gained 24.5% to close the last trading session at $5.65.
WIT’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WIT has an A grade for Stability and a B for Sentiment and Quality. It is ranked #2 out of 9 stocks in the A-rated Outsourcing- Tech Services industry. Beyond what is stated above, we’ve also rated WIT for Growth, Value, and Momentum. Get all the WIT ratings here.
Proto Labs, Inc. (PRLB)
PRLB operates as an e-commerce digital manufacturer of custom prototypes and on-demand production parts worldwide. The company offers injection molding, computer numerical control machining, three-dimensional (3D) printing, and sheet metal fabrication products, including quick-turn and e-commerce-enabled custom sheet metal parts. It serves developers and engineers who use 3D computer-aided design software.
On January 8, 2024, PRLB announced the launch of its rebranded Protolabs Network service that leverages global manufacturing partners for expanded capabilities and pricing options. Formerly known as Hubs, the move signals PRLB’s commitment to a singular global brand and unified customer experience.
In terms of the trailing-12-month gross profit margin, PRLB’s 43.44% is 44.6% higher than the 30.05% industry average. Likewise, its 11.47% trailing-12-month levered FCF margin is 90.3% higher than the industry average of 6.03%. Furthermore, the stock’s 3.08% trailing-12-month Capex/Sales is 3.9% higher than the industry average of 2.96%.
PRLB’s total revenue for the fiscal third quarter, which ended September 30, 2023, increased 7.4% year-over-year to $130.71 million. Its non-GAAP net income rose 21.4% over the prior-year quarter to $13.22 million. The company’s non-GAAP gross profit increased 10.2% year-over-year to $60.09 million. Also, its non-GAAP EPS came in at $0.51, representing an increase of 27.5% year-over-year.
For the quarter ended December 31, 2023, PRLB’s EPS and revenue are expected to increase 17.3% and 6.2% year-over-year to $0.31 and $122.72 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 60.2% to close the last trading session at $37.51.
PRLB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
Within the Technology – 3D Printing industry, it is ranked #2 out of 5 stocks. It has a B grade for Growth and Quality. Click here to see the additional ratings of PRLB for Value, Momentum, Stability, and Sentiment.
Bel Fuse Inc. (BELFB)
BELFB designs, manufactures, markets, and sells products that are used in the networking, telecommunications, computing, general industrial, high-speed data transmission, military, commercial aerospace, transportation, and e-mobility industries worldwide. It offers magnetic solutions, such as integrated connector modules, power transformers, SMD power inductors and SMPS transformers, and ethernet discrete components.
In terms of the trailing-12-month EBIT margin, BELFB’s 14.14% is 206.1% higher than the 4.62% industry average. Likewise, its 11.34% trailing-12-month net income margin is 456.2% higher than the industry average of 2.04%. Furthermore, the stock’s 1.20x trailing-12-month asset turnover ratio is 93.6% higher than the industry average of 0.62x.
For the fiscal third quarter, which ended September 30, 2023, BELFB’s net sales came in at $158.68 million. Its adjusted EBITDA rose 9.5% over the prior-year quarter to $29.88 million. The company’s non-GAAP net earnings increased 16.1% year-over-year to $21.24 million. Also, its non-GAAP Class A EPS came in at $1.59, representing an increase of 13.6% year-over-year.
Analysts expect BELFB’s EPS for the quarter ended December 31, 2023, to increase 26.5% year-over-year to $1.42. Its revenue for the quarter ending June 30, 2024, is expected to increase 0.9% year-over-year to $170.29 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 69.6% to close the last trading session at $68.89.
BELFB’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #2 out of 41 stocks in the B-rated Technology – Electronics industry. It has an A grade for Value and Sentiment and a B for Quality. To see the other ratings of BELFB for Growth, Momentum, and Stability, click here.
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WIT shares were trading at $5.72 per share on Wednesday morning, up $0.07 (+1.24%). Year-to-date, WIT has gained 2.89%, versus a 2.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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