In this article, I evaluated two tech stocks, Riot Blockchain, Inc. (RIOT) and Teradata Corporation (TDC), to determine which has the potential for better returns. After comparing the fundamentals of these stocks, we believe TDC is the better investment this month for reasons explained throughout this piece.
As businesses and industries increasingly rely on technology, IT service providers stand to benefit significantly. Moreover, the COVID-19 pandemic had a positive impact on the market. By investing in tech services, organizations across several end-use sectors are automating repetitive tasks and streamlining processes, leading to enhanced efficiency, productivity, and cost-effectiveness.
In recent years, cloud computing experienced considerable growth as businesses migrated their operations to the cloud, necessitating IT services to manage and secure these environments. Also, organizations utilize data analytics and business intelligence (BI) to gather insights from datasets, which aids in informed decision-making to improve performance across the business.
Further, the tech services industry’s growth is driven by technological trends, including the growing use of AI, machine learning, and blockchain, enhanced focus on the Internet of Things (IoT) & connected devices, and increasing need to comply with data privacy regulations. The global IT services market is expected to reach $2.59 trillion by 2030, expanding at a CAGR of 9.7%.
Meanwhile, the United States IT services market revenues are estimated to reach $306.10 billion by 2028, exhibiting a CAGR of 7.1% during the forecast period (2023-2028).
According to the latest forecast by Gartner, Inc., global IT services spending this year is projected to grow 7.3% year-over-year to $1.40 trillion. In addition, for 2024, world spending on IT services is projected to reach $1.55 trillion, up 10.4% from the previous year.
Moreover, investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF’s (IYW) 12.9% returns over the past six months and 62.1% year-to-date.
Thus, technology stocks RIOT and TDC will likely benefit from the industry’s promising growth prospects.
RIOT has gained 35.8% over the past month, while TDC plunged 8.5%. RIOT has surged 165.4% over the past nine months, compared to TDC’s 13.1% gain. In addition, RIOT climbed 235.7% over the past year, while TDC gained 26.7%.
However, here are the reasons why we think TDC could perform better in the near term:
Latest Developments
On December 4, RIOT executed a purchase option and updated its long-term purchase agreement with MicroBT Electronics Technology Co., LTD through its manufacturing subsidiaries, a leading manufacturer of Bitcoin miners. Under the purchase deal, RIOT will receive 66,560 latest-generation miners from MicroBT, in addition to the previously announced purchase of 33,280 miners.
“This purchase order and updated Agreement ensures that we will continue to own and operate one of the largest and most efficient Bitcoin mining fleets in the world,” said Jason Les, CEO of Riot.
On November 15, TDC introduced its first serverless AI/ML engine in the cloud, Teradata AI Unlimited. This new offering, unveiled at Microsoft Ignite, is natively integrated into Microsoft Fabric and OneLake, which is Fabric’s unified, multi-cloud data lake.
Teradata AI Unlimited maintains the company’s commitment to an open and connected ecosystem, providing the right tools for the design and iteration of analytical models and speeding the release of new products that leverage AI. The recent launch is expected to drive TDC’s profitability and growth.
Recent Financial Results
For the third quarter that ended September 30, 2023, RIOT’s Data Center Hosting revenue decreased 39% year-over-year to $5.11 million. Engineering revenue was $15.50 million, compared to $15.80 million for the same period of 2022. Also, its net loss came in at $45.30 million, or $0.25 per share, compared to a net loss of $32.40 million, or $0.21 per share a year ago, respectively.
TDC’s revenue increased 5% year-over-year to $438 million during the third quarter that ended September 30, 2023. Its non-GAAP operating income grew 16.7% from the year-ago value to $63 million. The company’s non-GAAP net income and non-GAAP EPS were $43 million and $0.42, compared to $32 million and $0.31 in the prior year’s quarter, respectively.
In addition, the company’s non-GAAP free cash flow came in at $36 million, up 16.1% from the previous year’s period.
Past and Expected Financial Performance
Over the past three years, RIOT’s revenue has increased at a CAGR of 220.1%. The company’s tangible book value and total assets have grown at CAGRs of 180% and 185.4% over the same time frame, respectively.
Analysts expect RIOT’s revenue for the fiscal year (ending December 2023) to increase 13.3% year-over-year to $293.71 million. For the fiscal year 2024, its revenue is expected to grow 59.1% year-over-year to $467.41 million. However, the company is estimated to report a loss per share of $0.98 and $0.79 for the fiscal years 2023 and 2024, respectively.
TDC’s EBITDA and EBIT have grown at CAGRs of 18.6% and 72.2% over the past three years, respectively. Also, the company’s levered free cash flow has increased at a CAGR of 2.7% over the same period.
For the fiscal year ending December 2023, TDC’s revenue and EPS are expected to increase 2.2% and 22.7% year-over-year to $1.83 billion and $2.01, respectively. Likewise, analysts expect the company’s revenue and EPS for the fiscal year 2024 to grow 4% and 18.2% from the prior year to $1.91 billion and $2.38, respectively.
Profitability
TDC’s trailing-12-month revenue is seven times what RIOT generates. Moreover, TDC is more profitable, with a trailing-12-month gross profit margin of 60.34% compared to RIOT’s 5.39%. TDC’s trailing-12-month EBITDA margin and net income margin of 14.06% and 3.39% compared to RIOT’s negative 41.44% and negative 110.24%, respectively.
Additionally, TDC’s trailing-12-month levered FCF margin of 18.01% compared with RIOT’s negative 92.43%. Also, TDC’s trailing-12-month ROE and ROTC of 34.73% and 10.93% compared to RIOT’s negative 21.88% and negative 16.08%, respectively.
Valuation
In terms of forward EV/Sales, TDC is currently trading at 2.50x, 72% lower than RIOT, which is trading at 8.94x. TDC’s forward EV/EBITDA of 10.40x is 68.4% lower than RIOT’s 32.89x. Moreover, TDC’s trailing-12-month Price/Sales multiple of 2.42 is lower than RIOT’s 8.86.
Thus, TDC is relatively more affordable.
POWR Ratings
RIOT has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, TDC has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RIOT has an F grade for Quality, in sync with lower profitability relative to its peers. The stock’s trailing-12-month EBITDA margin and net income margin of negative 41.44% and negative 110.24% compared to the respective industry averages of 9.25% and 2.35%.
On the contrary, TDC has an A grade for Quality, justified by its higher-than-industry profitability. The stock’s trailing-12-month EBITDA margin and net income margin of 14.06% and 3.39% are favorably compared to the industry averages of 9.25% and 2.35%, respectively.
In addition, RIOT has an F grade for Value, in sync with higher-than-industry valuation. The stock’s forward EV/EBITDA and Price/Sales of 32.89x and 9.86x are significantly higher than respective industry averages of 14.98x and 2.82x.
On the other hand, TDC has a B grade for Value, consistent with its lower valuation relative to its peers. The stock’s forward EV/EBITDA and Price/Sales of 10.40x and 2.34x are lower than the industry averages of 14.98x and 2.82x, respectively.
Of the 76 stocks in the Technology - Services industry, RIOT is ranked #75, while TDC is ranked first.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Sentiment, and Growth. Click here to view RIOT ratings. Get all TDC ratings here.
The Winner
Demand for tech services is expected to grow significantly, driven by the growing integration of digital technology into all business areas for streamlining operations such as efficient communication, work management and collaboration, customer relationship management (CRM), and inventory & supply chain management.
Moreover, the growing adoption of advanced technologies, including AI, machine learning, big data, blockchain, IoT, and more, drives the tech services industry’s profitability and expansion. Given the industry’s bright prospects, tech stocks RIOT and TDC are well-positioned to grow considerably.
However, RIOT’s relatively weak financials, low profitability, elevated valuation, and bleak growth outlook make its competitor, TDC, the better tech stock pick this month.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology - Services industry here.
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TDC shares were unchanged in premarket trading Wednesday. Year-to-date, TDC has gained 26.89%, versus a 22.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
Riot Blockchain (RIOT) vs. Teradata (TDC) - What’s the Best Stock to Buy for December Gains? StockNews.com
