Amid the escalating demand for cutting-edge tech solutions, the tech sector is experiencing a rapid surge in spending, propelling its expansion. Thus, it may be an opportune time to seek out bargain hunting for attractive technology stocks such as Ricoh Company, Ltd. (RICOY), Ribbon Communications Inc. (RBBN), ON24, Inc. (ONTF), which have an upside potential over the long term.
Global tech giants continue to propel the ever-evolving tech industry forward with relentless investment in research and development. Gartner, Inc.’s latest forecast predicts that worldwide IT spending will increase 8% year-over-year to reach a staggering $5.06 trillion in 2024. Concurrently, investments in IT software are poised for robust double-digit growth, surpassing the trillion-dollar mark to reach $1.04 trillion.
As automation transforms business landscapes and client expectations evolve, companies worldwide are increasingly turning to IT services to navigate these changes. From software development to data management, companies are outsourcing to streamline operations amid complex technology landscapes.
Moreover, the swift expansion of cloud computing is driving the adoption of cloud-based IT services, offering scalability and cost-effectiveness. As a result, the global IT services market is projected to reach $2.18 trillion by 2032, exhibiting a CAGR of 7.6%.
Furthermore, investors' interest in tech stocks is evidenced by the strong performance of the Vanguard Information Tech ETF (VGT), which has returned an impressive 28.2% over the past year.
Given this backdrop, let’s examine the fundamentals of the three tech stocks mentioned above.
Ricoh Company, Ltd. (RICOY)
Headquartered in Tokyo, Japan, RICOY provides office, commercial printing, and related solutions worldwide. It operates through Digital services, Digital Products, Graphic Communications, Industrial Solutions, and Other segments.
On April 22, 2024, RICOY announced the acquisition of natif.ai, a German software startup company offering AI-enabled Intelligent Capture, advanced image recognition, and optical character recognition technologies.
This strategic move should bolster RICOY’s Process Automation portfolio by enhancing its data extraction capabilities from various types of documents, including paper and handwritten ones. As a result, RICOY will be able to offer increased automation and sophistication across a wide range of business processes to its customers.
In terms of forward EV/Sales and EV/EBITDA, RICOY is trading at 0.46x and 6.39x, 84% and 56.7% lower than the industry averages of 2.86x and 14.74x, respectively. Also, its trailing-12-month Price/Sales multiple of 0.34 compares to the industry average of 2.87.
RICOY’s sales increased 10.1% year-over-year to ¥2.35 trillion ($14.95 billion) for the fiscal year 2023 (ended March 31, 2024). Its gross profit grew 10% from the year-ago value to ¥820 billion ($5.22 billion).
The company’s profit attributable to owners of the parent and earnings per share attributable to owners of the parent amounted to ¥44.10 billion ($280.99 million) and ¥72.55, respectively, in the same period. Also, its cash flow from operating activities increased 58.9% year-over-year to ¥125.60 billion ($799.65 million).
Street expects RICOY’s revenue for the quarter ending September 30, 2024, to increase 0.3% year-over-year to $3.84 billion. Its revenue for the fiscal year 2024 is expected to reach $15.37 billion, registering an impressive 337.9% year-over-year improvement. The company surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
RICOY has gained 7.5% over the past three months and 14.9% year-to-date to close the last trading session at $8.85.
RICOY’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Value and Stability and a B for Momentum. It is ranked #9 out of 37 stocks in the Technology - Hardware industry. Click here to see the additional POWR Ratings for RICOY (Growth, Sentiment, and Quality).
Ribbon Communications Inc. (RBBN)
RBBN provides communications technology in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally. It operates through two segments: Cloud and Edge; and IP Optical Networks.
On April 24, RBBN announced a new multi-year Verizon Network Modernization program to retire legacy TDM switching platforms and replace them with modern cloud-based technologies.
This initiative is expected to drive a recovery in broader Service Provider spending and fuel continued growth in the Enterprise sector, including new U.S. Federal projects. Through these efforts, RBBN anticipates a return to growth for its Cloud & Edge segment.
In terms of forward non-GAAP P/E, RBBN is trading at 12.27x, 47.4% lower than the industry average of 23.32x. Likewise, its forward EV/Sales and EV/EBIT multiples of 1.00 and 8.86 are 64.9% and 57.2% lower than the industry averages of 2.86x and 20.71x, respectively.
For the fiscal first quarter that ended March 31, 2024, RBBN’s total revenues amounted to $179.66 million, while its gross profit increased 12.9% year-over-year to $91.96 million. Non-GAAP adjusted EBITDA came in at $11.70 million compared to an adjusted EBITDA loss of $2.42 million in the prior year quarter. Also, its net cash provided by operating activities stood at $13.10 million, up 17.7% year-over-year.
Analysts expect RBBN’s revenue and EPS for the third quarter (ending September 2024) to increase 7.8% and 55% year-over-year to $219.06 million and $0.08, respectively.
Over the past six months, the stock has gained 47.4%, closing the last trading session at $3.14.
It is no surprise that RBBN has an overall rating of B, equating to Buy in our proprietary rating system.
It also has a B grade for Growth and Value. Out of 45 stocks in the Technology - Communication/Networking industry, it is ranked #4. Beyond what we have stated above, we have also given RBBN ratings for Momentum, Stability, Sentiment, and Quality. Get all RBBN ratings here.
ON24, Inc. (ONTF)
ONTF provides a cloud-based digital engagement platform enabling businesses to convert customer engagement into revenue through global interactive webinars, virtual events, and multimedia content experiences.
On May 16, the company announced that it had been recognized as the leading platform for virtual events in the G2 Spring 2024 Reports for the fifth consecutive year, thanks to its strong customer satisfaction and ROI.
In terms of forward EV/Sales, ONTF is trading at 0.41x, 85.6% lower than the industry average of 2.86x. Also, its forward Price/Sales and Price/Book multiples of 1.73 and 1.61 are 39.8% and 57.5% lower compared to the industry averages of 2.87x and 3.80x, respectively.
During the first quarter that ended March 31, 2024, ONTF reported a total revenue of $37.73 million, of which revenue from subscription and other platform was $34.83 million. Its non-GAAP gross profit was $28.94 million for the quarter.
The company’s non-GAAP net income was $953 thousand or $0.02 per share, against a non-GAAP net loss of $1.83 million or $0.04 per share in the prior year’s quarter. Also, its adjusted EBITDA amounted to $313 thousand compared to the year-ago adjusted EBITDA loss of $2.86 million.
According to the financial outlook for the fiscal year 2024, ONTF expects core platform revenue, including services, to be between $139.80 million and $143.80 million. Its total revenue is expected to be between $143 million and $147 million.
For the fiscal year 2025, ONTF’s EPS is expected to be $0.09, representing a 92.8% improvement year-over-year. Its consensus revenue estimate for the next year is $144.62 million. Shares of ONTF have declined 9.9% over the past month to close the last trading session at $5.94.
ONTF’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It also has a B grade for Value and Sentiment. It is ranked #15 out of 79 stocks in the Technology - Services industry. To see the other ratings of ONTF for Growth, Momentum, Stability, and Quality, click here.
What To Do Next?
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RICOY shares closed at $8.85 on Friday, down $-0.04 (-0.45%). Year-to-date, RICOY has gained 14.87%, versus a 11.30% 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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