The technology industry currently thrives, driven by digital transformation and the growing adoption of cloud-based IT services. Thus, investors could consider buying fundamentally sound tech stocks Pure Storage, Inc. (PSTG), Zoom Video Communications, Inc. (ZM), and Logitech International S.A. (LOGI), which are currently trading under $100.
Cloud-based IT services are gaining popularity owing to their low cost of deployment. Similarly, businesses can easily scale up and down with cloud-based IT services. Thus, cloud-based IT services are considered to be the most effective deployment platform by many small and medium-sized enterprises in recent times. Therefore, cloud-based IT services are expected to grow at a CAGR of 10% from 2024 to 2031.
Moreover, the growing digitization of the public sector is a major catalyst for the IT hardware market. Governments globally are acknowledging the advantages of digital technologies and are launching numerous initiatives to enhance service delivery, boost efficiency, and offer improved citizen-focused solutions.
The IT hardware market is expected to reach $191.03 billion by 2029, growing at a CAGR of 7.9% by 2029.
Considering these factors, let’s take a look at the fundamentals of the three tech stock picks.
Pure Storage, Inc. (PSTG)
PSTG engages in the provision of data storage and management technologies, products, and services in the United States and internationally. Its Purity software is shared across its products and provides enterprise-class data services, such as always-on data reduction, data protection, and encryption, as well as storage protocols, including block, file, and object.
On June 5, 2024, PSTG announced a strategic investment in LandingAI, the leading visual AI company, to advance vision AI technology. This collaboration aims to integrate PSTG’s data storage platform with LandingAI’s Large Vision Model (LVM) solutions, enhancing enterprises’ AI capabilities. It would enable enterprises to better utilize AI for complex image and video data, driving innovation and competitive advantage in the AI/ML sector.
PSTG’s forward non-GAAP PEG of 0.54x is 48.5% lower than the industry average of 1.05x.
For the fiscal first quarter that ended May 5, 2024, PSTG’s total revenue increased 17.7% year-over-year to $693.48 million. Its non-GAAP gross profit grew 20.4% from the year-ago value to $512.16 million. The company’s non-GAAP net income improved by 334.7% and 300% from the prior year’s quarter to $107.30 million and $0.32 per share, respectively. Also, its non-GAAP free cash flow stood at $172.68 million, up 41.7% year-over-year.
Analysts expect PSTG’s EPS for the second quarter ending July 2024, to increase 8.2% year-over-year to $0.37. The company’s revenue is expected to grow 9.8% year-over-year to $756.09 million for the same quarter. Further, PSTG topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is excellent.
Over the past three months, the stock has gained 19.5% to close the last trading session at $59.10.
PSTG’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PSTG has an A grade for Quality and Growth and a B for Sentiment. It is part of the A-rated Technology - Storage industry.
Click here to access the additional PSTG ratings (Momentum, Stability, and Value).
Zoom Video Communications, Inc. (ZM)
ZM provides a unified communications platform worldwide. The company provides Zoom Meetings, offering HD video, voice, chat, and content sharing, Zoom Phone, an enterprise cloud phone system, and Zoom Chat, which enables users to share messages, images, audio files, and content.
On May 21, ZM announced the availability of post-quantum end-to-end encryption globally for Zoom Workplace, particularly Zoom Meetings. Zoom Phone and Zoom Rooms will soon be unveiled. The new security enhancement launch makes ZM the first UCaaS company to offer a post-quantum E2EE solution for video conferencing.
On March 25, ZM introduced Zoom Workplace, ZM’s AI-powered collaboration platform, available in AWS Marketplace, a digital catalog with thousands of software listings from independent software vendors that make it easy to find, test, buy, and deploy software that runs on AWS. With this, ZM can reach more customers and be better equipped to enable IT teams to consolidate their technology.
ZM’s forward EV/EBITDA of 5.91x is 60.1% lower than the industry average of 14.81x. Its forward EV/EBIT multiple of 6.23 is 69.9% lower than the industry average of 20.72.
ZM’s revenues for the first quarter ended April 30, 2024, increased 2.7% year-over-year to $1.14 billion. Its gross profit grew 3.2% from the year-ago value to $867.93 million. The company’s non-GAAP income from operations of $456.60 million indicates growth of 8.1% year-over-year.
In addition, the company’s non-GAAP net income came in at $426.32 million and $1.35 per share, up 20.7% and 16.4% from the prior year’s quarter, respectively.
According to the company’s second quarter of fiscal 2025 guidance, ZM’s total revenue is expected to be between $1.14 billion and $1.15 billion, and its non-GAAP income from operations is expected to be between $415 million and $420 million. The company’s non-GAAP EPS is also expected to be between $1.20 and $1.21.
For the full year, the company expects total revenue of $4.61 billion - $4.62 billion. The full fiscal year non-GAAP income from operations is expected to range from $1.74 billion to $1.75 billion, and non-GAAP EPS is expected to be between $4.99 and $5.02.
Street expects ZM’s revenue for the second quarter (ending July 2024) to grow 1% year-over-year to $1.15 billion, and its EPS is expected to be $1.22 for the same quarter. Moreover, the company has topped the consensus revenue and EPS estimates in all of the trailing four quarters.
Over the past month, the stock has gained 4.7% to close the last trading session at $58.87.
ZM’s robust 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.
The stock has a B grade for Quality and Value. ZM is ranked #4 out of 78 stocks in the Technology - Services industry.
Beyond what is stated above, we’ve also rated ZM for Stability, Sentiment, Growth, and Momentum. Get all ZM ratings here.
Logitech International S.A. (LOGI)
Headquartered in Lausanne, Switzerland, LOGI designs, manufactures, and markets products that connect people to working, creating, gaming, and streaming worldwide. The company offers pointing devices, such as wireless mouse, corded and cordless keyboards, and keyboard-and-mouse combinations, PC webcams, and other accessories for mobile devices.
On July 9, 2024, LOGI and, a leading innovator of gaming technologies and gear, announced the Logitech G309 LIGHTSPEED Wireless Gaming Mouse, a premium designed mouse with dual-wireless connectivity, precision tracking, and reliable performance in a newly designed form factor for all.
LOGI’s forward EV/EBIT of 18.06x is 12.8% lower than the industry average of 20.72x. Its forward EV/Sales multiple of 2.78 is 7.3% lower than the industry average of 3.
LOGI’s net sales for the fourth quarter that ended March 31, 2024, came in at $1.01 billion, up 5.4% year-over-year. Its non-GAAP operating income rose 92.7% year-over-year to $158.61 million. Its non-GAAP net income increased 91.7% year-over-year to $154.43 million, and its non-GAAP net income per share grew 98% over the previous year’s quarter to $0.99.
Street expects LOGI’s EPS and revenue for the fiscal 2025 first quarter ended June 30, 2024, to increase 35.4% and 6.1% year-over-year to $0.88 and $1.03 billion, respectively. Also, the company topped consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past three months, the stock gained 15%, closing the last trading session at $88.92.
LOGI’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth. LOGI is ranked #6 in the B-rated 39-stock Technology - Hardware industry.
In addition to the POWR Ratings highlighted above, one can access LOGI’s ratings (Value, Momentum, Stability, and Sentiment) here.
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PSTG shares were trading at $60.87 per share on Monday afternoon, up $1.77 (+2.99%). Year-to-date, PSTG has gained 70.70%, versus a 17.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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