The tech industry is well-positioned for growth amid rising demand for faster connectivity, digital transformation initiatives, cloud-based solutions, and 3D printing. The tech sector faced challenges over the past year due to rapid rate hikes, but with the Fed now indicating rate cuts next year, the industry stands to benefit.
Given this backdrop, it could be wise to consider investing in fundamentally strong tech stocks Canon Inc. (CAJPY), Proto Labs, Inc. (PRLB), and Gilat Satellite Networks Ltd. (GILT).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the tech industry’s prospects.
Enterprises worldwide are enhancing their digital capabilities by investing in digital transformation. They are streamlining their operations by adopting cloud-based solutions, integrating artificial intelligence (AI), and implementing the Internet of Things (IoT).
Gartner forecasts global IT spending to hit $4.69 trillion in 2023, a 3.5% year-over-year increase. It is expected to rise 8% year-over-year to $5.07 trillion next year. The rise in digitization initiatives is driving demand for cutting-edge networking and communication solutions.
The demand for communication/networking equipment is growing due to emerging technologies such as 5G and Network Function Virtualization (NFV), the proliferation of IoT in devices, increasing data traffic, expansion of data centers, adoption of public and private cloud services, etc.
The global optical communication and networking equipment market is expected to grow at a CAGR of 15.8% to reach $107.46 billion by 2030.
The Biden Administration introduced the Public Wireless Supply Chain Innovation Fund, allocating $1.50 billion to promote the development of open and interoperable networks. This initiative seeks to spearhead the implementation of open and interoperable 5G radio access networks, fostering technological advancement in the United States.
Moreover, post the pandemic, the demand for advanced hardware solutions that support remote work has risen. The rise of cloud-based software and the integration of artificial intelligence into software development would drive the demand for advanced hardware solutions. Investing in such advanced hardware enhances overall productivity and efficiency for companies.
Although the spending on devices is expected to decrease by 10% in 2023, it is projected to grow by 4.8% year-over-year to $722.47 billion in the following year.
Notably, 3D printing technology is rapidly gaining acceptance across various industries, including automotive, aerospace, and healthcare. Driven by the need to reduce manufacturing costs, manufacture tailored products, on-demand production, ease of customization, etc., the 3D printing industry is well-positioned for growth.
The 3D printing market is projected to grow at a CAGR of 23.3% to reach $34.80 billion by 2030. Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR Fund ETF’s (XLK) 54.1% returns year-to-date.
Considering these conducive trends, let’s analyze the fundamental aspects of the stocks mentioned above.
Canon Inc. (CAJPY)
Headquartered in Tokyo, Japan, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through a Printing Business Unit, an Imaging Business Unit, a Medical Business Unit, an Industrial Business Unit, and other segments.
In terms of the trailing-12-month net income margin, CAJPY’s 6.44% is 174.5% higher than the 2.35% industry average. Likewise, its 8.93% trailing-12-month EBIT margin is 83.1% higher than the 4.88% industry average. Additionally, its 8.38% trailing-12-month Return on Common Equity is 654.9% higher than the 1.11% industry average.
CAJPY’s net sales for the third quarter ended September 30, 2023, increased 2.9% year-over-year to ¥1.03 trillion ($7.22 billion). Its operating profit rose 1.5% year-over-year to ¥82.62 billion ($578.96 million). The company’s net income attributable to CAJPY increased 14.8% year-over-year to ¥62.13 billion ($435.38 million). In addition, its EPS came in at ¥62.62, representing an increase of 18.4% year-over-year.
Street expects CAJPY’s revenue for the fiscal year ending December 31, 2023, to increase 115.8% year-over-year to $28.78 billion. The stock has gained 20% year-to-date to close the last trading session at $26.02.
CAJPY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, Stability, and Quality. Within the A-rated Technology - Hardware industry, it is ranked #5 out of 37 stocks. To see CAJPY’s Growth and Sentiment ratings, click here.
Proto Labs, Inc. (PRLB)
PRLB is 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.
On July 17, 2023, PRLB announced the expansion of its CNC machining capabilities to offer accelerated anodizing and chromate plating on aluminum components, enabling custom-machined parts with plating in as fast as four days. Anodizing and plating help to prevent corrosion, strengthen parts, and enhance their cosmetic appearance.
Rob Bodor, President and CEO at PRLB, said, “We’ve promised our customers more capabilities across all our service lines this year, and our machining service is leading the way. Through our unique manufacturing model that pairs a network of global manufacturers with our digital factories, we can comprehensively serve the prototyping and production needs of our customers.”
In terms of the trailing-12-month gross profit margin, PRLB’s 43.44% is 43.5% higher than the 30.28% industry average. Likewise, its 11.47% trailing-12-month levered FCF margin is 92.7% higher than the 5.95% industry average. Additionally, its 3.08% trailing-12-month Capex/Sales is 3.2% higher than the 2.98% industry average.
For the third quarter ended September 30, 2023, PRLB’s total revenue rose 7.4% year-over-year to $130.71 million. Its non-GAAP gross profit increased 10.2% over the prior-year quarter to $60.09 million. The company’s adjusted EBITDA came in at $23.94 million, up 9% year-over-year.
Additionally, its non-GAAP net income and net income per share grew 21.4% and 27.5% from the year-ago quarter to $13.22 million and $0.51, respectively.
Analysts expect PRLB’s revenue for the quarter ending December 31, 2023, to increase 6.2% year-over-year to $122.72 million. Its EPS for the same quarter is expected to increase 17.3% year-over-year to $0.31. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 56% to close the last trading session at $39.68.
It’s no surprise that PRLB has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth and Quality. Within the Technology – 3D Printing industry, it is ranked #2 out of 5 stocks. In total, we rate PRLB on eight different levels. Beyond what we stated above, we have also given PRLB grades for Value, Momentum, Stability, and Sentiment. Get all the PRLB ratings here.
Gilat Satellite Networks Ltd. (GILT)
Headquartered in Petah Tikva, Israel, GILT and its subsidiaries provide satellite-based broadband communication solutions in Israel, the United States, Peru, and internationally. It operates in three segments: Satellite Networks, Integrated Solutions, and Network Infrastructure and Services.
On December 4, 2023, GILT announced that its U.S. based subsidiary, Wavestream, was awarded a nearly $20 million contract by the United States Army for additional 50W Ka-band BUCs to sustain anytime, anywhere satellite connectivity for the long-term support of thousands of mobile Satellite Transportable Terminals (STTs).
Bob Huffman, Wavestream’s General Manager and Senior VP at GILT, said, “With more than a decade and a half of field-proven performance, the Wavestream 50W Ka SSPA continues to satisfy the Army’s need for dependable satellite communications in support of our warfighters operating in harsh and hostile environments around the world.”
On November 16, 2023, GILT announced the successful completion of its acquisition of DataPath, Inc., enhancing GILT's presence in the defense sector with an anticipated $50 million increase in annual revenues. This strategic move creates synergies and opens new opportunities for both companies in the global defense and satellite communication sectors.
In terms of the trailing-12-month EBIT margin, GILT’s 11.91% is 144% higher than the 4.88% industry average. Its 16.70% trailing-12-month EBITDA margin is 80.5% higher than the 9.25% industry average. Likewise, its 7.51% trailing-12-month Return on Total Capital is 179% higher than the industry average of 2.69%.
GILT’s revenues for the fiscal third quarter ended September 30, 2023, increased 5.9% year-over-year to $63.93 million. Its non-GAAP gross profit rose 12.1% over the prior-year quarter to $25.91 million. The company’s non-GAAP operating income stood at $6.10 million, up 39.6% over the year-ago quarter.
Its non-GAAP net income rose 51.2% over the prior-year quarter to $4.58 million for the same quarter. Also, its non-GAAP EPS came in at $0.08, representing an increase of 33.3% year-over-year.
For the quarter ending December 31, 2023, GILT’s revenue is expected to increase 4.6% year-over-year to $75.99 million. Over the past nine months, the stock has gained 12.8% to close the last trading session at $6.17.
GILT’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.
It has an A grade for Sentiment and a B for Value and Quality. Within the Technology – Communication/Networking industry, it is ranked first out of 46 stocks. To access the additional ratings of GILT for Growth, Momentum, and Stability, click 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.
CAJPY shares were trading at $25.97 per share on Friday morning, down $0.05 (-0.19%). Year-to-date, CAJPY has gained 21.63%, versus a 25.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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