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3 Tech Stocks Outperforming Most of the Industry

As rapid technological advances continue to transform industries, the tech sector is poised for significant expansion in the foreseeable future. Given this backdrop, fundamentally strong tech stocks TaskUs (TASK), NetScout Systems (NTCT), and GigaCloud Technology (GCT) could be wise portfolio additions now. Read on…

Despite confronting significant macroeconomic hurdles, the tech sector exhibited unwavering resilience. The tech-heavy Nasdaq Composite gained 30.5% year-to-date. The advent of advanced technologies and heightened global tech spending could provide a persistent boost for this sector.

Therefore, quality tech stocks TaskUs, Inc. (TASK), NetScout Systems, Inc. (NTCT), and GigaCloud Technology Inc. (GCT) could be solid buys now.

Before discussing what makes these stocks well-positioned for delivering solid returns, let’s see why the technology sector is primed for expansion.

Technological advancements simplify our lives, making once-expensive or seemingly out-of-reach services easily attainable. Poised for growth, this digital revolution is sweeping sectors from healthcare to automotive and real estate.

Several industries are harnessing cutting-edge technologies like AI, the Internet of Things (IoT), Augmented and Virtual Reality (AR and VR), 5G, and machine learning. These innovative tools captivate customers, encourage novel technological breakthroughs, and boost efficiency.

Moreover, many companies are embarking on extensive digital transformation efforts. This trend is expected to accelerate as adopting hybrid working models becomes increasingly popular.

The digital transformation market is anticipated to surpass $7.03 trillion by 2032, growing at a 25.1% CAGR. The upward trajectory is fueled by changing customer expectations, the evolution of business models, robust competition, improved operational efficiency, and commitments to sustainability.

Investors recognize the potential in tech stocks, evident from the Technology Select Sector SPDR Fund’s (XLK) 37.4% year-to-date return, which outpaced the broader S&P 500’s 14% gains.

With these favorable trends in mind, let's delve into the fundamentals of the three Technology - Services stock picks, beginning with the third choice.

Stock #3: TaskUs, Inc. (TASK)

TASK provides digital outsourcing services for companies worldwide. It offers a digital customer experience consisting of omni-channel customer care services primarily delivered through digital channels; and other solutions, including customer care services for new product or market launches, trust and safety solutions, and customer acquisition solutions.

On September 13, TASK launched two new sites in India: Mystiqa in Gurugram and Dreamland in Navi Mumbai, adding more than 1200 Seats with significant additional expansion capacity. The new site would add to its capacity to help clients provide excellent customer service and content moderation.

During the second quarter, the company returned $38 million of capital to shareholders via share repurchases while continuing to invest in its strategic initiatives. TASK intends to continue share repurchase at attractive valuations as part of its capital allocation strategy.

TASK’s trailing-12-month asset turnover ratio of 1.04x is 28.6% higher than the industry average of 0.81x. Its trailing-12-month levered FCF and gross profit margins of 17.03% and 42.02% are 203.4% and 38.6% higher than the industry averages of 5.62% and 30.31%, respectively.

For the fiscal second quarter that ended June 30, 2023, TASK’s service revenue stood at $229.17 million. Its adjusted net income and adjusted EPS came at $31.82 million and $0.32, respectively.

Its adjusted EBITDA stood at $54.65 million, while its free cash flow increased 17.3% year-over-year to $28.73 million. TASK’s total current assets stood at $365.82 million as of June 30, 2023, compared to $341.43 million as of December 31, 2022.

Street expects TASK’s revenue and EPS in the fiscal third quarter ending September 2023 to come at $220.78 million and $0.29, respectively. The consensus revenue and EPS estimates of $928.66 million and $1.28 for the fiscal year ending December 2024 represent 2.6% and 5.8% year-over-year increases. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock declined 2.3% intraday to close the last trading session at $8.94.

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

TASK has a B grade for Growth, Value, and Quality. It is ranked #21 within the 73-stock Technology - Services industry.

To see additional POWR Ratings for Momentum, Stability, and Sentiment for TASK, click here.

Stock #2: NetScout Systems, Inc. (NTCT)

NTCT provides service assurance and cybersecurity solutions to protect digital business services against disruptions globally. 

Recently, NTCT achieved Amazon Web Services (AWS) Security Competency for its advanced NDR product, Omnis Cyber Intelligence (OCI), in the threat detection and response category.

NTCT’s unique technology, interoperability, and deep integrations with AWS help Omnis Cyber Intelligence give organizations vital context across the lifecycle of their cloud migrations, ultimately helping reduce the time it takes to detect, validate, investigate, and respond to potential security events.

Last month, NTCT launched Adaptive DDoS Protection for its Arbor Threat Mitigation System (TMS) to dramatically improve the detection of distributed attacks that dynamically change vectors and simultaneously target numerous destination IP addresses. This should bode well for the company.

NTCT’s trailing-12-month net income margin of 6.83% is 223.1% higher than the industry average of 2.11%. Its trailing-12-month ROCE and ROTA of 3.18% and 2.29% are 164.3% and 525.1% higher than the industry averages of 1.20% and 0.37%, respectively.

For the fiscal first quarter that ended June 30, 2023, NTCT’s total revenue and non-GAAP gross profit stood at $211.14 million and $165.30 million, up 1.1% and 6.3% year-over-year, respectively.

For the same quarter, its non-GAAP net income and non-GAAP adjusted net income per share stood at $22.71 million and $0.31, up 25.8% and 29.2% year-over-year, respectively. Its non-GAAP EBITDA from operations increased 16.1% year-over-year to $34.63 million.

For the fiscal year 2024, the company expects its revenue (GAAP and non-GAAP) to be between $915 million and $945 million, while its non-GAAP net income per share (diluted) is expected to come between $2.20 and $2.32.

Street expects NTCT’s revenue and EPS in the fiscal year ending March 2024 to increase 1.4% and 4.3% year-over-year to $927.45 million and $2.27, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.

The stock has gained 2.1% over the past five days to close the last trading session at $26.61.

NTCT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.

NTCT has an A grade for Value and a B for Growth and Quality. Within the same industry, it is ranked #3.

Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Sentiment. Get all ratings of NTCT here.

Stock #1: GigaCloud Technology Inc. (GCT)

GCT provides end-to-end B2B e-commerce solutions for large parcel merchandise. Its marketplace connects manufacturers primarily in Asia with resellers in the United States, Asia, and Europe to execute cross-border transactions across furniture, home appliances, fitness equipment, and other large parcel categories. 

In September, GCT entered into three new warehouse leases. Two of these warehouses will be in the U.S., resulting in a 20.7% increase in the country's warehousing space, while the third is in Bremen, Germany, marking a 47.8% increase in the total warehouse areas in Germany.

The strategically placed warehouses will be key distribution centers for GCT's large parcel merchandise, ensuring efficient product storage, processing, and distribution.

In the same month, GCT had entered into a definitive agreement (the Asset Purchase Agreement) as the stalking horse bidder to acquire substantially all assets of Noble House Home Furnishings, LLC for $85 million. The acquisition would add significant depth to GCT’s 1P and 3P businesses, supplementing its diverse product offerings.

GCT’s trailing-12-month levered FCF margin of 15.91% is 212% higher than the industry average of 5.10%. Its trailing-12-month ROCE, ROTC, and ROTA of 23.04%, 11.90%, and 10.43% are 102.2%, 95.9%, and 170.9% higher than the industry averages of 11.39%, 6.08% and 3.85%, respectively.

For the fiscal second quarter that ended June 30, 2023, GCT’s total revenues and gross profit stood at $153.13 million and $40.36 million, up 23.5% and 137.1% year-over-year, respectively. Its adjusted EBITDA increased 219.3% year-over-year to $24.87 million.

For the same quarter, its net income and net income per ordinary share increased 201.5% and 200% year-over-year to $18.39 million and $0.45, respectively. For the six months that ended June 30, 2023, its cash and restricted cash stood at $182.40 million, up 259.6% year-over-year.

Street expects GCT’s revenue in the fiscal third quarter ending September 2023 to increase 27.8% year-over-year to $163.53 million, while its EPS is expected to increase significantly year-over-year to $0.36.

The stock has gained 54.1% year-to-date to close the last trading session at $8.77. Over the past six months, it gained 41%.

GCT’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.

GCT has an A grade for Quality and a B for Growth, Value, and Sentiment. It is ranked #2 within the same industry.

Click here for the additional POWR Ratings for GCT (Momentum and Stability).

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

NTCT shares were trading at $26.44 per share on Thursday morning, down $0.17 (-0.64%). Year-to-date, NTCT has declined -18.67%, versus a 15.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.


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