Despite facing macroeconomic headwinds, the technology sector is expected to see robust long-term growth due to constant innovation and adaptability.
Given the industry’s bright prospects, investors could consider buying fundamentally sound tech stocks Gartner, Inc. (IT) and Nomura Research Institute, Ltd. (NRILY) for solid returns. However, I think it could be wise to wait for a better entry point in Wipro Limited (WIT) for reasons discussed throughout this article.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the tech industry.
IT outsourcing is a strategic business approach in which companies hire external service providers to handle specific IT tasks or projects, allowing them to gain access to specialized skills, reduce costs, and increase efficiency by focusing on core competencies.
The global IT services outsourcing market is predicted to grow at an 8.0% CAGR until 2030. The IT industry is predicted to expand significantly as demand for IT operations, data security, and customer-centricity rises, notably in the aerospace, defense, and BFSI sectors, as well as the need for IT strategy, architecture advisory, and digital transformation.
In addition, Statista forecasts the global IT services market will grow at a 6.8% annual, resulting in a market of $1.77 trillion by 2028. Moreover, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 11.1% returns over the past six months and 28% over the past nine months.
Let us dive deeper into the fundamentals of the featured stocks:
Stocks to Buy:
Gartner, Inc. (IT)
IT operates as a global research and advisory company. The firm operates through its three broad segments: Research; Conferences; and Consulting.
IT’s trailing-12-month ROCE of 370.99% is significantly higher than the 1.46% industry average, while its trailing-12-month ROTA of 12.85% is significantly higher than the industry average of 0.48%.
For the third quarter of the fiscal year 2023 ended September 30, IT’s revenues increased 5.8% year-over-year to $1.41 billion. During the same period, the company’s adjusted EBITDA increased marginally year-over-year to $333 million, while the net income increased 3.4% year-over-year to $180 million. The company’s adjusted EPS came in at $2.56, up 6.2% year-over-year.
IT’s revenue is expected to increase by 7.6% year-over-year to $6.36 billion for the year ending December 2024. Its EPS is expected to grow 7.6% year-over-year to $11.96 for the same period. It surpassed EPS estimates in all four trailing quarters. IT’s shares have gained 33% over past year to close the last trading session at $441.56.
IT’s POWR Ratings reflect this promising outlook. The stock 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.
IT has an A grade for Quality. Within the A-rated Outsourcing – Tech Services industry, it is ranked #3 out of 9 stocks. To see additional POWR Ratings for Growth, Value, Stability, Sentiment, and Momentum for IT, click here.
Nomura Research Institute, Ltd. (NRILY)
Headquartered in Tokyo, Japan, NRILY offers consulting, financial, and industrial IT solutions and IT platform services. Its segments include Consulting, Financial IT Solutions, Industrial IT Solutions, and IT Infrastructure Services. The company provides management and system consulting, system development, and operational solutions for various sectors, such as finance, manufacturing, and public services.
NRILY’s trailing-12-month ROTC of 11.02x is 273.3% higher than the industry average of 2.95x. Its trailing-12-month ROTA of 9.07% is significantly higher than the industry average of 0.48%.
NRILY’s revenue for the six months ended September 30, 2023, increased 6.8% year-over-year to ¥362.07 billion ($2.43 billion). The company’s operating profit increased 6.5% over the prior-year period to ¥58.87 billion ($394.96 million). Also, its profit attributable to owners of parent and EPS came in at ¥37.66 billion ($252.66) and ¥64.09, up 5% and 5.7% year-over-year, respectively.
The consensus revenue estimate of $5.21 billion for the year ending March 2024 represents a 58.7% increase year-over-year. Shares of NRILY has gained 27.2% over the past year to close the last trading session at $30.15.
NRILY’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
NRILY has an A grade for Stability and a B for Quality. It ranks #6 in the same industry. Click here to access additional NRILY ratings (Value, Growth, Momentum and Sentiment).
Stock to Hold:
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).
WIT’s trailing-12-month ROCE of 16.44% is significantly higher than the industry average of 1.46%. However, its trailing-12-month gross profit margin of 29.55% is 40.2% lower than the industry average of 49.41%.
For the fiscal third quarter that ended September 30, 2023, WIT’s revenues amounted to ₹225.16 billion ($2.70 billion), decreased marginally year-over-year.
Its gross profit for the period increased 7.2% year-over-year to ₹65.97 billion ($791.34 million). The company’s profit for the period rose 0.7% over the prior-year quarter to ₹26.67 billion ($319.92 million). Its EPS attributable to equity holders of the company increased 3.9% over the prior-year quarter to ₹5.04.
Street expects WIT’s revenue to decrease 2% year-over-year to $10.85 billion for the fiscal year ending March 2024. Its EPS is expected to grow marginally year-over-year to $0.26 for the same period. Shares of WIT has gained 13.7% over the past year to close the last trading session at $5.38.
WIT has an overall C rating, equating to a Neutral in our POWR Ratings system. It has a C grade for Value, Sentiment and Momentum. It is ranked #8 in the same industry.
Beyond what is stated above, we’ve also rated WIT for Growth, Stability and Quality. Get all WIT ratings 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.
IT shares were trading at $436.24 per share on Thursday morning, down $5.32 (-1.20%). Year-to-date, IT has declined -3.30%, versus a -0.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
Analyzing 2024 Buy and Sell Potential of 3 Outsourcing Tech Stocks StockNews.com
