The tech industry is set for strong growth thanks to advancements in AI, IoT, and cloud computing, driving innovation and efficiency. This year’s robust growth is driven by greater tech adoption, hybrid work environments, rising automation demand, and the increase in tech startups, making it a promising investment opportunity.
Against this backdrop, investors might consider investing in undervalued tech stocks such as Flex Ltd. (FLEX), TD SYNNEX Corporation (SNX), and Dropbox, Inc. (DBX) with high upside potential.
The global digital economy has increased demand for tech services to help businesses adapt and thrive. Government support, including the U.S. government’s $504 million investment in Tech Hubs, boosts the tech services industry’s prospects by funding critical projects, creating jobs, and enhancing competitiveness.
Tech services boost business operations, resilience, and productivity, leading to rising investments. Gartner forecasts global IT spending will reach $5.26 trillion in 2024, a 7.5% increase from 2023. Notably, IT services spending is projected to grow 7.1% this year, reaching $1.61 trillion.
In addition, the adoption of emerging technologies like Robotic Process Automation (RPA), blockchain, extended reality, and platform engineering boosts the tech services industry. These innovations create new opportunities for tech services companies to offer cutting-edge solutions to clients. The U.S. IT Services Market is estimated at $461.03 billion in 2024, reaching $630.76 billion by 2029, with a 6.47% CAGR.
Considering these conducive trends, let’s assess the fundamentals of the three abovementioned Technology - Services stocks, starting with the third choice.
Stock #3: Flex Ltd. (FLEX)
FLEX provides manufacturing solutions to various brands in Asia, the Americas, and Europe. It operates through two segments: Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS).
On May 31, 2024, FLEX announced the acquisition of FreeFlow to enhance its reverse logistics and circular economy services, creating new revenue streams and accelerating sustainability efforts through second-life products. This acquisition expands FLEX’s capabilities across multiple markets, including data centers, enterprise, and lifestyle sectors.
In terms of forward non-GAAP P/E, FLEX’s 13.06x is 45.3% lower than the 23.86x industry average. Its 0.92x forward non-GAAP PEG is 51.7% lower than the 1.92x industry average. Similarly, its 7.78x forward EV/EBITDA is 46.5% lower than the 14.53x industry average.
During the first quarter that ended on June 28, 2024, FLEX reported net revenue of $6.31 billion. The company’s non-GAAP operating income grew 4.4% year-over-year to $306 million. Moreover, its non-GAAP net income stood at $211 million, while its non-GAAP EPS rose 8.5% over the prior-year quarter to $0.51.
Street expects FLEX’s EPS and revenue for the quarter ending March 31, 2025, to increase 23.2% and 7.4% year-over-year to $0.70 and $6.62 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, FLEX’s stock has gained 83.2% to close the last trading session at $31.76. The average analyst price target of $36.20 indicates a 14% upside potential.
FLEX’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #20 out of 77 stocks in the Technology - Services industry. It has a B grade for Value and Momentum. Click here to see FLEX’s ratings for Growth, Stability, Sentiment, and Quality.
Stock #2: TD SYNNEX Corporation (SNX)
SNX is a distributor and solutions aggregator for the information technology (IT) ecosystem. The company provides personal computing devices, mobile phones, printers, supplies, endpoint technology software, and a range of data center technologies, including hybrid cloud, security, storage, networking, servers, and computing components.
On June 3, 2024, SNX announced that Hyve Solutions has integrated the latest Intel Xeon 6 processors into its motherboards and systems, enhancing performance and efficiency for AI, high-performance computing, and cloud applications. This integration supports advanced data center operations and reflects ongoing collaboration with Intel to meet modern computing demands.
On May 21, 2024, SNX announced the launch of MSP Evolve, a program designed to enhance operational excellence and accelerate growth for managed service providers (MSPs) in North America. The program includes comprehensive resources, tools, and training to help MSPs optimize and expand their services.
In terms of forward EV/EBITDA, SNX’s 7.56x is 48% lower than the 14.53x industry average. Likewise, its 9.87x forward non-GAAP P/E is 58.6% lower than the 23.86x industry average. Also, its 8.20x forward EV/EBIT is 59.8% lower than the 20.38x industry average.
For the second quarter that ended May 31, 2024, SNX’s revenues came in at $13.95 billion. Its non-GAAP gross profit rose marginally year-over-year to $973.55 million. Likewise, its non-GAAP net income came in at $236.86 million, up 3.4% from the year-ago value. Also, its non-GAAP EPS grew 12.4% year-over-year to $2.73.
For the quarter ending August 31, 2024, SNX’s revenue is expected to increase 1.5% year-over-year to $14.17 billion. Its EPS for the same quarter is expected to increase 1.2% year-over-year to $2.81. It surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 27.5% to close the last trading session at $116.29. The average analyst price target of $133.63 indicates a 14.9% upside potential.
SNX’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth and Value. Within the same industry, it is ranked #19. To access the additional POWR Ratings of SNX for Momentum, Stability, Sentiment, and Quality, click here.
Stock #1: Dropbox, Inc. (DBX)
DBX provides a content collaboration platform worldwide. The company’s platform allows individuals, families, teams, and organizations to collaborate and sign up for free through its website or app, as well as upgrade to a paid subscription plan for premium features.
On April 24, 2024, DBX introduced seamless end-to-end encryption, Microsoft co-authoring, new Dropbox Replay features, and advanced data protection tools. These updates enhance security, organization, and sharing for teams, aiming to improve workflow efficiency and collaboration for distributed teams.
In terms of forward non-GAAP PEG, DBX’s 0.96x is 49.9% lower than the 1.92x industry average. Its 10.25x forward EV/EBIT is 49.7% lower than the 20.38x industry average. Likewise, its 10.97x forward non-GAAP P/E is 54.1% lower than the 23.86x industry average.
In the fiscal first quarter that ended March 31, 2024, DBX’s revenue stood at $631.30 million, up 3.3% year-over-year, and non-GAAP gross profit rose 6.1% year-over-year to $533.80 million. For the same quarter, its non-GAAP net income and net income per share increased 34.6% and 38.1% over the prior-year quarter to $196.70 million and $0.58, respectively.
Analysts expect DBX’s EPS and revenue for the quarter ended June 30, 2024, to increase 2.6% and 1.2% year-over-year to $0.52 and $630.01 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 7.8% to close the last trading session at $23.49. The average analyst price target of $27.20 indicates a 15.8% upside potential.
DBX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #3 in the Technology - Services industry. It has an A grade for Quality and a B for grade for Growth and Value. To see DBX’s Momentum, Stability, and Sentiment, click here.
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FLEX shares were trading at $31.31 per share on Thursday afternoon, down $0.45 (-1.42%). Year-to-date, FLEX has gained 2.79%, versus a 15.54% 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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