The tech industry is thriving, driven by the adoption of emerging technologies, increased spending on tech services, and the shift towards remote work and virtual collaboration.
Considering the industry’s bright prospects, quality tech stocks Leidos Holdings, Inc. (LDOS), PC Connection, Inc. (CNXN), Proto Labs, Inc. (PRLB), and Lantronix, Inc. (LTRX) could be wise additions to your portfolio.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the tech industry.
The technology industry is expanding as more end-use industries adopt digital solutions for efficiency, accessibility, scalability, and flexibility. To remain competitive, companies are rapidly undergoing digital transformation, which entails integrating digital technologies into their operations, supply chains, and business models. Canalys predicts a 6.2% growth in worldwide IT spending to $4.94 trillion in 2024.
The IT services industry is expanding rapidly due to digitization initiatives, the adoption of cloud services, and the demand for cybersecurity support. The global IT services industry is expected to reach $1.32 trillion by 2027, growing at a CAGR of 4.1%.
In addition, businesses are integrating 3D printing into their capabilities to streamline production, reduce costs, improve workflows, create intricate designs, and transform supply chains through on-demand and localized manufacturing. The global 3D printing market is projected to grow at a CAGR of 15.5% to reach $23.41 billion by 2031.
Furthermore, there is a huge demand for cutting-edge hardware to ensure the seamless functioning of software and manage data-heavy workloads. The IT hardware market is projected to grow at a CAGR of 7.9% to reach $191.03 billion by 2029. Moreover, investors’ interest in tech stocks is evident from the iShares Expanded Tech Sector ETF’s (IGM) 55.1% returns over the past year.
In light of these encouraging trends, let’s look at the fundamentals of the four above-mentioned tech stocks.
Leidos Holdings, Inc. (LDOS)
LDOS provides services and solutions in the defense, intelligence, civil, and health markets globally. It offers national security solutions and systems for air, land, sea, and space for the U.S. Intelligence Community, systems integration services to air navigation service providers, and solutions for people's health and well-being.
On March 6, 2024, LDOS announced that it had signed a multi-year Strategic Collaboration Agreement (SCA) with Amazon Web Services. The collaboration will use each company's distinct strengths to accelerate innovation for new and existing customers in the public sector and select commercial markets.
The collaboration will focus on developing solutions combining LDOS' mission-critical systems expertise with AWS's cloud computing capabilities. This partnership aims to drive digital transformation and enhance the overall customer experience.
In terms of the trailing-12-month Return on Total Capital, LDOS’ 8.32% is 19.4% higher than the 6.97% industry average. Likewise, its 1.20x asset turnover ratio is 50.4% higher than the 0.80x industry average.
For the fiscal fourth quarter that ended December 29, 2023, LDOS’ revenues rose 7.6% year-over-year to $3.98 billion. Its adjusted EBITDA came to $452 million, up 13.9% from the previous year’s quarter. The company’s non-GAAP net income grew 9.1% from the year-ago value to $275 million, and its non-GAAP EPS increased 8.7% year-over-year to $1.99.
For the quarter ended March 31, 2024, LDOS’ revenue and EPS are expected to increase 3.4% and 16% year-over-year to $3.83 billion and $1.71, respectively. The company surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 45.1% over the past nine months, closing the last trading session at $128.66.
LDOS’ POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LDOS has a B grade for Value, Momentum, Stability, and Sentiment. Within the Technology - Services industry, it is ranked first among 81 stocks. To see LDOS' additional ratings for Growth and Quality, click here.
PC Connection, Inc. (CNXN)
CNXN provides various information technology (IT) solutions worldwide. The company operates through three segments: Business Solutions, Enterprise Solutions, and Public Sector Solutions.
CNXN’s trailing-12-month asset turnover ratio of 2.49x is 302.8% higher than the industry average of 0.62x. Likewise, the stock’s trailing-12-month Return on Common Equity of 10.36% is 196.8% higher than the industry average of 3.49%. Additionally, its 7.01% trailing-12-month Return on Total Assets is 327% higher than the industry average of 1.64%.
CNXN’s net sales for the fiscal fourth quarter ended December 31, 2023 came in at $696.47 million. Its income from operations came in at $27.94 million, up 16.9% year-over-year.
Also, its net income rose 26.3% year-over-year to $23.78 million. Its earnings per common share increased 26.8% year-over-year to $0.90.
Analysts expect CNXN’s EPS for the quarter ended March 31, 2024, to increase 17.9% year-over-year to $0.66. Its revenue for the quarter ending June 30, 2024, is expected to increase 3.4% year-over-year to $758.81 million. It surpassed the consensus EPS estimates in three of the trailing four quarters. CNXN’s shares have gained 46.1% over the past year to close the last trading session at $65.58.
It’s no surprise that CNXN has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has a B grade for Momentum, Stability, Sentiment, and Quality. It is ranked #2 in the same industry. Beyond what is stated above, we’ve also rated CNXN for Growth and Value. Get all CNXN ratings 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.
In terms of the trailing-12-month gross profit margin, PRLB’s 44.06% is 42.4% higher than the 30.94% industry average. Likewise, its 5.58% trailing-12-month CAPEX / Sales is 89.2% higher than the industry average of 2.95%. Furthermore, the stock’s 9.34% trailing-12-month levered FCF margin is 43.6% higher than the industry average of 6.51%.
During the fiscal fourth quarter ended December 31, 2023, PRLB’s total revenue rose 8.2% year-over-year to $125.05 million. Its non-GAAP gross profit increased 14.5% over the prior-year quarter to $56.61 million.
The company’s adjusted EBITDA came in at $22.30 million, up 53.8% year-over-year. Additionally, its non-GAAP net income and net income per share grew 70.1% and 76.9% year-over-year to $11.83 million and $0.46, respectively.
Street expects PRLB’s revenue for the quarter ending June 30, 2024, to increase 4.9% year-over-year to $128.26 million. Its EPS for the quarter ended March 31, 2024, is expected to increase 4.2% year-over-year to $0.31. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 32.8% to close the last trading session at $34.26.
PRLB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Quality. It is ranked first out of the five stocks in the Technology - 3D Printing industry. Click here to see PRLB's ratings for Stability and Sentiment.
Lantronix, Inc. (LTRX)
LTRX offers solutions for video surveillance, infotainment systems, and intelligent substations infrastructure internationally. The company’s IoT products include IoT System Solutions, Embedded IoT Modules, and Software and Engineering Services. It also offers telematics devices, which provide power-efficient products.
LTRX’s trailing-12-month levered FCF margin of 16.98% is 81.7% higher than the industry average of 9.35%. Its trailing-12-month asset turnover ratio of 0.92x is 49% higher than the industry average of 0.62x.
For the fiscal second quarter ended on December 31, 2023, LTRX’s net revenue increased 17.5% year-over-year to $37.04 million. Its gross profit rose 9% from the year-ago value to $15.03 million. In addition, the company’s non-GAAP net income amounted to $2.96 million and $0.08, representing increases of 115.4% and 100% year-over-year, respectively.
For the quarter that ended March 31, 2024, LTRX’s revenue and EPS are expected to increase 22.1% and 63.3% year-over-year to $40.22 million and $0.10, respectively. Shares of LTRX has declined 19.3% over the past month to close the last trading session at $3.17.
LTRX’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Momentum and a B for Value, Sentiment, and Quality. Within the B-rated Technology – Hardware industry, LTRX is ranked first out of 38 stocks. To access LTRX’s Stability rating, 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.
LDOS shares were trading at $128.70 per share on Monday morning, up $0.04 (+0.03%). Year-to-date, LDOS has gained 19.26%, versus a 9.45% 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.
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