The global tech industry is well-positioned for significant growth as businesses seek advanced tech services to adapt to remote work, 5G, IoT, and digital transformations. In addition, increased investments in tech, advanced hardware, and cybersecurity create attractive investment opportunities in this rapidly evolving sector.
Amid this backdrop, investors could look to buy fundamentally strong tech stocks such as NetApp, Inc. (NTAP), Leidos Holdings, Inc. (LDOS), and Dropbox, Inc. (DBX) before August, due to their promising growth prospects.
In today’s tech-focused market, global enterprises are investing heavily in digital transformation, focusing on trends like AI, No-code, and sustainable tech. This surge in digital capabilities is boosting demand for tech services. Hence, Gartner predicts global IT spending will hit $5.26 trillion in 2024, up 7.5% from 2023, with IT services growing by 7.1% to $1.61 trillion.
Meanwhile, the tech sector is thriving with the rise of generative AI, ambient computing, and robotics, driving automation. This creates a higher demand for advanced hardware to support robotics, cloud, and edge computing, further boosting sales. Consequently, IT hardware sales are booming, with the market projected to reach $191.03 billion by 2029, growing at a 7.9% CAGR.
Furthermore, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR Fund’s (XLK) 33.6% returns over the past nine months.
Considering these conducive trends, let’s assess the fundamentals of the abovementioned technology stocks.
NetApp, Inc. (NTAP)
NTAP provides cloud-led and data-centric services to manage and share data on-premises and private and public clouds worldwide. It operates in two segments: Hybrid Cloud and Public Cloud. The company offers intelligent data management software and storage infrastructure solutions.
On July 10, 2024, NTAP introduced new capabilities to enhance cloud workload management, including GenAI and VMware, through tools like NetApp BlueXP Workload Factory and GenAI Toolkit. These updates aim to optimize deployment, performance, and cost efficiency in hybrid multicloud environments.
On May 14, 2024, NTAP unveiled its new AFF A-Series systems, designed to enhance performance for AI and other demanding workloads with unified data storage and integrated services. These systems aim to simplify and accelerate data management across hybrid and cloud environments.
NTAP’s levered FCF grew at a CAGR of 8% over the past three years. Also, its net income grew at a CAGR of 10.5% over the past three years.
In terms of the trailing-12-month Return on Total Capital, NTAP’s 20.74% is 640.2% higher than the 2.80% industry average. Similarly, its 9.97% trailing-12-month Return on Total Assets is 434.6% higher than the industry average of 1.87%. Its 0.64x trailing-12-month asset turnover ratio is 2.5% higher than the industry average of 0.62x.
For the fiscal third quarter, which ended January 26, 2024, NTAP’s net revenue increased 5.7% year-over-year to $1.67 billion. Its non-GAAP gross profit rose 9.3% from the year-ago value to $1.19 billion.
NTAP’s non-GAAP income from operations grew 13.3% year-over-year to $469 million. In addition, the company’s non-GAAP net income came in at $382 million or $1.80 per share, increases of 14.4% and 16.9% year-over-year, respectively.
Street expects NTAP’s EPS and revenue for the quarter ending July 31, 2024, to increase 26.4% and 6.5% year-over-year to $1.45 and $1.53 billion, respectively. It surpassed the revenue estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 74.1% to close the last trading session at $124.99.
NTAP’s POWR Ratings reflect robust prospects. It has an overall rating of B, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 39 stocks in the B-rated Technology - Hardware industry. It has an A grade for Quality and a B for Growth. Click here to see NTAP’s Value, Momentum, Stability, and Sentiment ratings.
Leidos Holdings, Inc. (LDOS)
LDOS provides services and solutions in the defense, intelligence, civil, and health markets in the U.S. and internationally. The company operates through Defense Solutions, Civil, and Health segments.
On July 11, 2024, LDOS secured a $476 million contract to continue providing cargo mission support for NASA's ISS and Artemis programs. The contract includes engineering, integration, and logistics services with a base period of two years.
On July 9, 2024, LDOS was awarded the Medicaid Enterprise Systems Integrator contract by North Dakota Health and Human Services. The contract involves modernizing the state's Medicaid Management Information Systems to a scalable and secure modular system.
LDOS’ revenue grew at a CAGR of 8.8% over the past five years. Also, its levered FCF grew at a CAGR of 14.1% over the past three years.
In terms of the trailing-12-month asset turnover ratio, LDOS’ 1.21x is 55.9% higher than the 0.78x industry average. Likewise, the stock’s 9.29% trailing-12-month Return on Total Capital is 29.9% higher than the 7.15% industry average.
LDOS’ revenues for the fiscal first quarter that ended June 28, 2024, increased 7.7% from the year-ago value to $4.13 billion. Similarly, its non-GAAP operating income rose 35.1% from the year-ago value to $524 million.
For the same quarter, its non-GAAP net income attributable to LDOS common stockholders stood at $358 million, up 43.8% over the prior-year quarter. Also, its non-GAAP EPS attributable to LDOS common stockholders grew 46.1% year-over-year to $2.63.
For the quarter ending September 30, 2024, LDOS’ revenue is expected to increase 4.4% year-over-year to $4.09 billion. Its EPS for the same quarter is expected to increase 5% year-over-year to $2.13. LDOS surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 65.7% to close the last trading session at $149.95.
LDOS’ 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 Growth, Momentum, and Stability. Within the Technology - Services industry, it is ranked #2 out of 76 stocks. To access the additional POWR Ratings of LDOS for Value and Quality, click here.
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 launched new features including end-to-end encryption, Microsoft co-authoring, Dropbox Replay updates, and advanced data protection tools. These improvements enhance security, organization, and sharing, aiming to boost workflow efficiency and collaboration for distributed teams.
DBX’s EBITDA grew at a CAGR of 24.8% over the past three years. Likewise, its EBIT grew at a CAGR of 41.8% during the same period.
In terms of the trailing-12-month levered FCF margin, DBX’s 30.13% is 209.9% higher than the 9.72% industry average. Its 17.56% trailing-12-month EBIT margin is 247.5% higher than the industry average of 5.05%. Moreover, its 0.87x trailing-12-month asset turnover ratio is 40.3% higher than the industry average of 0.62x.
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 7.1% to close the last trading session at $24.06.
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 #4 in the Technology - Services industry. It has an A grade for Quality and a B for Growth and Value. To see DBX’s Momentum, Stability, and Sentiment, click here.
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NTAP shares were trading at $123.64 per share on Tuesday afternoon, down $1.35 (-1.08%). Year-to-date, NTAP has gained 42.30%, versus a 14.51% 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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