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3 Reasons Why These 3 Tech Stocks Are a Great Buy

The technology industry is set to soar to new heights, riding the wave of sustained IT spending and the widespread embrace of emerging technologies. Hence, to capitalize on the industry’s tailwinds, it could be wise to invest in fundamentally sound tech stocks Epson Corporation (SEKEY), Spirent Communications (SPMYY), Daktronics (DAKT). Learn more...

With businesses and individuals increasingly embracing innovative solutions, the technology sector is thriving and creating new opportunities for companies in this space. Given the rapid digitization and the breakthrough of cutting-edge technologies, the demand for tech-related products and solutions remains robust.

Below, I have highlighted three reasons why these fundamentally sound tech stocks, Seiko Epson Corporation (SEKEY), Spirent Communications plc (SPMYY), and Daktronics, Inc. (DAKT), could be great buys now.

Firstly, the technology sector is booming, driven by hype around generative artificial intelligence applications and a robust demand for tech products and services. Companies in this space are experiencing fierce competition to grow and assert their dominance in the market. Moreover, they are pouring substantial resources into research and development to bring new and innovative producers to the market.

According to the latest forecast by Gartner, worldwide IT spending is expected to total $4.70 trillion this year, up 4.3% year-over-year. Also, the global IT hardware market is poised to grow at a 6.1% CAGR by 2027.

Secondly, digitalization and innovative technologies such as robotics, AI, cloud computing, IoT, and machine learning have given industries ample opportunities to streamline processes and enhance their offerings.

As Artificial intelligence (AI) continues to make a mark across various sectors, the application of AI in hardware devices or systems such as Graphics Processing Units (GPUs), AI Central Processing Units (CPUs), Tensor Processing Units (TPUs), and AI processors used in providing AI in hardware services, are expected to propel the market’s growth.

The global AI in hardware market is projected to expand at a CAGR of 23.3%, reaching $48.48 billion by 2027. Meanwhile, the global hardware market is expected to reach $164.21 billion by 2027, growing at a CAGR of 7.9%.

This rapid growth in the industry creates a promising landscape for companies to flourish and excel. Therefore, investing in quality tech stocks SEKEY, SPMYY, and DAKT could help reap significant returns. To top it off, these stocks have earned a ‘Strong Buy’ rating in our proprietary POWR Ratings system. 

Let’s look at the featured stocks in more detail.

Seiko Epson Corporation (SEKEY)

Headquartered in Suwa, Japan, SEKEY develops, manufactures, sells, and provides products for printing solutions, visual communications, manufacturing-related and wearables, and other businesses. It operates through three segments: Printing Solutions; Visual Communications; and Manufacturing-related and Wearables.

On June 15, SEKEY launched the M-G370PDG (M-G370G), a new addition to its Inertial Measurement Unit (IMU) portfolio. The M-G370G has a cutting-edge six degrees of freedom sensor, enhancing its performance capabilities.

By expanding its range of compact, lightweight, energy-efficient one-inch platform products, SEKEY is providing its customers with increased choices, enabling them to select the product that best suits their specific needs and applications in terms of functionality and performance.

On April 12, SEKEY partnered with Loftware to transform and modernize customers’ labeling workflows. The partnership integrates the Epson ColorWorks series of color label printers with Loftware’s NiceLabel Cloud platforms.

The collaboration offers several benefits, including decreased reliance on IT, reduced printing errors, and cost savings by minimizing pre-printed label inventory.

In the first quarter (ended June 30, 2023), SEKEY’s revenue increased 5.7% year-over-year to ¥314.84 billion ($2.25 billion), while its gross profit rose marginally from the year-ago value to ¥107.74 billion ($769.48 million). During the same period, its profit for the period and EPS amounted to ¥20.19 billion ($144.19 million) and ¥60.89, respectively.

Street expects SEKEY’s revenue to increase marginally year-over-year for the fiscal second quarter (ending September 2023) to $2.29 billion. Further, its revenue is projected to register a 36.9% year-over-year growth, reaching $9.75 billion in the fiscal year 2024. Moreover, it surpassed the revenue estimates in three of the trailing four quarters.

Also, its revenue and EBIT have grown at CAGRs of 8.4% and 32.9% over the past three years, respectively, while its EPS has improved at a 114.9% CAGR over the same period.

Over the past nine months, the stock has gained 20.6% to close the last trading session at $8.12.

SEKEY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Value, Stability, and Quality. In the 43-stock Technology - Hardware industry, it is ranked #2. Click here to see SEKEY’s ratings for Growth, Momentum, and Sentiment.

Spirent Communications plc (SPMYY)

Headquartered in Crawley, the United Kingdom, SPMYY is a global provider of automated test and assurance solutions for networks, cybersecurity, and positioning. The company operates through Lifecycle Service Assurance; and Networks & Security segments.

On June 29, SPMYY announced that Indonesia’s new Telecommunication Equipment Testing Center had selected Spirent technology for conducting high-speed Ethernet network equipment and electromagnetic compatibility (EMC) testing. Using Spirent TestCenter, the labs can efficiently perform advanced testing with features like high scalability, automation, and real-time reporting for complex network systems.

This reflects strong demand for the company’s offerings and can further increase business opportunities and potential partnerships for SPMYY.

In the same month, the company announced the availability of an industry-first 400G probe for next-generation network testing and monitoring. SPMYY offers the only network assurance solution that provides such a highly dense capacity for emulation, activation testing, and performance monitoring of 400G network traffic. The deployment of growing numbers of 5G networks and increasing data rates should bode well for the company.

SPMYY’s revenue increased 5.5% year-over-year to $607.50 million for the fiscal year that ended December 31, 2022. Its gross profit came in at $437.10 million, representing an increase of 2.9% from the year-ago period.

The company’s adjusted operating profit rose 9.3% from the year-ago value to $129.50, while its adjusted attributable profit for the year increased 13.5% year-over-year to $114.50 million. Also, its adjusted earnings per share stood at $18.75, up 13.9% year-over-year. 

Street expects SPMYY’s revenue to increase marginally year-over-year in fiscal year 2023 and 3.4% year-over-year in fiscal year 2024 to $599.43 million and $619.96 million, respectively. The company’s revenue has grown at 6.5% and 6% CAGRs over the past three and five years, respectively. Also, its EPS has grown at a 9% CAGR over the past three years.

The stock has gained marginally over the past month to close the last trading session at $8.59.

It’s no surprise that SPMYY has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Stability and Quality and a B for Value. Within the same industry, it is ranked #5.

In addition to the POWR Ratings we stated above, we also have SPMYY ratings for Growth, Momentum, and Sentiment. Get all SPMYY ratings here.

Daktronics, Inc. (DAKT)

DAKT designs and manufactures electronic scoreboards, programmable display systems, and large-screen video displays for sporting, commercial, and transportation applications. It operates through Commercial, Live Events, High School Park and Recreation, Transportation, and International segments.

On May 11, the company strengthened its financial position by closing on a new 3-year $75 million senior secured credit facility with JPMorgan Chase and a $25 million convertible debt financing agreement with major shareholder Alta Fox Capital Management, LLC.

The management believes that these transactions will furnish DAKT with the essential working capital and liquidity to effectively carry out its business plan and growth strategy, thereby generating long-term value for its shareholders.

On April 3, Green Bay Packers selected DAKT to manufacture and install two main video displays, two auxiliary video displays, and 60 concourse LED displays at Lambeau Field in Green Bay, Wisconsin. The contract for delivering high-resolution displays benefits the company in terms of revenue and expands its presence significantly inside Lambeau Field.

DAKT’s net sales increased 29.4% year-over-year for the fourth quarter that ended on April 29, 2023, to $209.86 million. Its gross profit improved 74.2% from the year-ago value to $52.14 million, while its adjusted income amounted to $18.26 million compared to an operating loss of $319 thousand.

Also, the company’s net income and EPS came in at $21.39 million and $0.47 versus a net loss and loss per share of $1.12 million and $0.02.

DAKT’s revenue is expected to increase 15% year-over-year in the current quarter ending July 31, 2023, to $197.70 million. Its EPS for the same period is expected to be $0.17 and increase by 10% per annum over the next five years. Over the past three years, its revenue and total assets grew at CAGRs of 7.4% and 7.9%, respectively. Its EBITDA for the same period increased at a CAGR of 29.8%.

DAKT’s shares have surged 110.5% over the past nine months to close the last trading session at $7.03.

DAKT’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 Value and a B for Sentiment. In the same industry, it is ranked #6 out of 43 stocks. Click here to see the other ratings of DAKT for Momentum, Stability, and Quality.

43 Year Investment Pro Shares Top Picks

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SEKEY shares were trading at $7.70 per share on Friday afternoon, down $0.43 (-5.23%). Year-to-date, SEKEY has gained 4.90%, versus a 20.28% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.


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