Macroeconomic headwinds such as aggressive interest rate hikes by the Fed, multi-decade high inflation, industry layoffs, recessionary concerns, and geopolitical instability have marred the tech industry's performance.
However, the overall demand for tech goods and services remains robust. The global information technology market is estimated to grow at a CAGR of 4.3% until 2026. Moreover, investors' interest in tech stocks is evident from the SPDR NYSE Technology ETF's (XNTK) 12.5% returns over the past three months, 11.2% returns over the past month, and 4.6% over the past nine months.
Furthermore, International Business Machines Corporation (IBM) Chairman and CEO Arvind Krishna believes the tech industry will be 2% to 4% "faster growing than GDP." He said, "Everyone is going to go forward for digital transformation because it's the only way to scale a nation or a company without having a lot of labor cost."
Given the backdrop, fundamentally sound tech stocks Nokia Oyj (NOK), Viavi Solutions Inc. (VIAV), and Extreme Networks, Inc. (EXTR) could be ideal additions to your watchlist.
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions worldwide. The company operates through four segments Mobile Networks; Network Infrastructure; Cloud and Network Services; and Nokia Technologies.
On February 14, 2023, NOK and Kyndryl Holdings, Inc. (KD), the world's largest provider of IT infrastructure services, announced a three-year extension and expansion of their global network and edge partnership, with a focus on developing and delivering industry-leading LTE and 5G private wireless services, as well as Industry 4.0 solutions to customers worldwide.
NOK's forward EV/Sales of 0.81x is 72.6% lower than the industry average of 2.95x. Its forward Price/Sales multiple of 0.95 is 68% lower than the industry average of 2.96.
NOK's EBIT margin of 10.71% is 88.6% higher than the 5.68% industry average, while its EBITDA margin of 15.29% is 36.3% higher than the industry average of 11.22%.
NOK's net sales came in at €7.45 billion ($7.97 billion) for the fourth quarter that ended December 31, 2022, increasing 16,1% year-over-year. Moreover, its gross profit came in at €3.19 billion ($3.41 billion), up 25.8% year-over-year. Also, its profit rose 363.5% year-over-year to €3.15 billion ($3.37 billion), while its EPS came in at €0.56, representing an increase of 366.7% year-over-year.
NOK's revenue is expected to increase 5.7% year-over-year to $27.66 billion in 2023. Its EPS is expected to grow 6.7% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. NOK's shares have gained marginally intraday to close the last trading session at $4.73.
NOK's strong fundamentals are reflected in its POWR Ratings. The stock's overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NOK has an A grade for Value and a B for Sentiment. In the B-rated Technology – Communication/Networking industry, it is ranked #11 out of 48 stocks. Click here for the additional POWR Ratings for Stability, Growth, Momentum, and Quality for NOK.
Viavi Solutions Inc. (VIAV)
VIAV provides network test, monitoring, and assurance solutions for communications service providers, enterprises, network equipment manufacturers, original equipment manufacturers, government, and avionics. The company operates through three segments: Network Enablement (NE); Service Enablement (SE); and Optical Security and Performance Products (OSP).
VIAV's forward EV/Sales of 2.41x is 18.1% lower than the industry average of 2.95x. Its forward Price/Sales multiple of 2.19 is 25.9% lower than the industry average of 2.96.
VIAV's gross profit margin of 61.63% is 26% higher than the 48.92% industry average, while its levered FCF margin of 10.95% is 62.3% higher than the industry average of 6.75%.
VIAV's service enablement revenue increased 14.2% year-over-year to $27.4 million in the fiscal second quarter that ended December 31, 2022. Its total current liabilities came in at $328 million for the period ended December 31, compared to $369 million for the period ended July 2, 2022.
Street expects its revenue to increase by 6.1% year-over-year to $1.21 billion in 2024. Its EPS is expected to grow 27.4% year-over-year to $0.79 in 2024. It surpassed EPS estimates in three out of four trailing quarters. Over the past three months, the stock has gained 2.3% to close the last trading session at $11.28.
VIAV has an overall B rating, which equates to a Buy in our POWR Ratings system. It has a B grade for Value, Sentiment, and Quality. VAIV is ranked #9 in the same industry. To see the additional POWR Ratings for VIAV (Stability, Momentum, and Growth), click here.
Extreme Networks, Inc. (EXTR)
EXTR is a software-driven networking solutions provider that designs, develops, and manufactures wired and wireless network infrastructure equipment and engages in software development.
On February 8, 2023, EXTR announced the integration of network fabric capabilities into its ExtremeCloudTM SD-WAN platform, allowing users to securely connect diverse environments such as data centers, campuses, and branch sites from a single platform. This multi-faceted product is a solid addition to the company's portfolio.
EXTR's forward EV/Sales of 2x is 32.2% lower than the industry average of 2.95x. Its forward Price/Sales multiple of 1.92 is 35% lower than the industry average of 2.96.
EXTR's gross profit margin of 56.28% is 15% higher than the 48.92% industry average, while its levered FCF margin of 11.47% is 70% higher than the industry average of 6.75%.
EXTR's non-GAAP total revenue increased 13.3% year-over-year to $318.3 million in the fiscal second quarter that ended December 31, 2022. Its non-GAAP net income and non-GAAP net income per share came in at $36.5 million and $0.27, up 28.5% and 28.6% year-over-year.
Analysts expect EXTR's revenue to increase 14% year-over-year to $1.27 billion in 2023. Its EPS is estimated to grow 33.8% year-over-year to $1.03 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past nine months, the stock has gained 93.3% to close the last trading session at $19.08.
It's no surprise that EXTR has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and Growth. It is ranked #2 in the same industry.
Beyond what is stated above, we've also rated EXTR for Value, Stability, Momentum, and Sentiment. Get all EXTR ratings here.
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NOK shares were trading at $4.75 per share on Thursday morning, up $0.02 (+0.42%). Year-to-date, NOK has gained 2.67%, versus a 7.33% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
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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