The tech industry shows strong growth potential, driven by trends like AI-integrated hardware, advanced enterprise software, and scalable solutions that help businesses focus on core competencies. This makes tech stocks an attractive investment. Investors may want to consider fundamentally strong, discounted stocks like HP Inc. (HPQ), Open Text Corporation (OTEX), and Ricoh Company, Ltd. (RICOY).
In today’s digital era, software applications are essential for tech businesses, streamlining operations, boosting productivity, and enhancing decision-making with scalable, customizable, and secure solutions. These benefits drive digital transformation and long-term success. The software market is projected to grow at a 5.3% CAGR from 2024 to 2028, reaching $858.10 billion.
Furthermore, tech hardware innovations, including AI-specific equipment, GPUs, FPGAs, and ASICs, are revolutionizing tech businesses by enhancing AI processing, device efficiency, and supporting AI-driven tasks. These advancements fuel growth in AI PCs, edge computing, and smart devices, boosting market sales. The IT hardware market is projected to grow at a 7.9% CAGR, reaching $191.03 billion by 2029.
Considering these conducive trends, let’s assess the fundamentals of the three abovementioned tech stocks.
HP Inc. (HPQ)
HPQ provides personal computing and other digital access devices, imaging and printing products, and related technologies, solutions, and services worldwide. The company operates through three segments: Personal Systems, Printing, and Corporate Investments.
On September 25, 2024, HPQ announced it acquired Vyopta, a provider of collaboration management solutions, to strengthen its Workforce Experience Platform. This move will help HPQ offer customers better analytics, monitoring, and AI-driven insights for improved employee experience and IT management.
In terms of forward non-GAAP P/E, HPQ’s 10.70x is 55.4% lower than the 23.98x industry average. Its 0.79x forward EV/Sales is 72.8% lower than the 2.92x industry average. Similarly, its 8.13x forward EV/EBITDA is 44.4% lower than the 14.62x industry average.
In the fiscal third quarter ended July 31, 2024, HPQ reported total net revenue of $13.52 billion, up 2.4% year-over-year. Its non-GAAP earnings from operations were $1.09 billion. Moreover, the company’s non-GAAP net earnings were $819 million, or $0.83 per share.
Street expects HPQ’s EPS for the quarter ending October 31, 2024, to increase 3.4% year-over-year to $0.93. Its revenue for the same quarter is expected to grow 1.4% year-over-year to $14.01 billion. HPQ’s stock has gained 38.3% over the past year to close the last trading session at $35.78.
HPQ’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Quality. Within the B-rated Technology – Hardware industry, it is ranked #12 out of 43 stocks. To access the additional POWR Ratings of HPQ for Growth, Momentum, Stability, Sentiment, and Quality, click here.
Open Text Corporation (OTEX)
OTEX engages in the provision of information management products and services. The company offers content services and operates an experience cloud platform that provides customer experience and web content management, digital asset management, customer analytics, AI and insights, e-discovery, digital fax, omnichannel communications, secure messaging, and voice of the customer.
On October 22, 2024, OTEX announced a major evolution of its Secure Cloud platform to drive growth for managed service providers (MSPs). The enhanced platform offers new features like automated provisioning, integrated task management, and bundled security solutions to streamline MSP operations and improve customer service.
On October 21, 2024, OTEX announced a strategic partnership with Cork Inc. to offer comprehensive cybersecurity and cyber warranty solutions for SMBs and MSPs. This collaboration enhances MSP service offerings, providing both cyber protection and financial safeguards to attract and retain clients.
In terms of forward EV/EBITDA, OTEX’s 7.86x is 46.2% lower than the 14.62x industry average. Likewise, its 2.63x forward EV/Sales is 9.9% lower than the 2.92x industry average. Also, its 8.50x forward EV/EBIT is 57.5% lower than the 19.99x industry average.
In the fiscal fourth quarter ended June 30, 2024, OTEX’s total revenues stood at $1.36 billion. Likewise, its cloud services and subscriptions revenue were $464.90 million, up 2.9% year-over-year. Its non-GAAP EPS stood at $0.98, indicating 7.7% growth from the prior-year quarter. Moreover, its free cash flow rose 59.2% year-over-year to $145.20 million.
For fiscal 2026 OTEX’s EPS and revenue are expected to increase 16.8% and 2.7% year-over-year to $4.21 and $5.48 billion, respectively. OTEX surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 5.9% to close the last trading session at $33.24.
OTEX’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Value. Within the Software – Application industry, it is ranked #18 out of 132 stocks. To see OTEX’s Growth, Momentum, Stability, Sentiment, and Quality ratings, click here.
Ricoh Company, Ltd. (RICOY)
Headquartered in Tokyo, Japan, RICOY provides office, commercial printing, and related solutions worldwide. The company operates through its Digital Services, Digital Products, Graphic Communications, Industrial Solutions, and Other segments.
In terms of forward EV/Sales, RICOY’s 0.49x is 83.1% lower than the 2.92x industry average. Its 7.15x forward EV/EBITDA is 51.1% lower than the 14.62x industry average. Furthermore, its 0.39x forward Price/Sales is 87.1% lower than the 2.98x industry average.
RICOY’s net sales increased by 7.4% year-over-year to ¥574.38 billion ($3.77 billion) for the fiscal first quarter ended June 30, 2024. Similarly, its operating profit was ¥6.33 billion ($41.51 million) for the period. The company’s profit attributable to owners of the parent amounted to ¥7.80 billion ($51.15 million), or ¥13.02 per share.
Analysts expect RICOY’s revenue for the quarter ended September 30, 2024, to increase 4.9% year-over-year to $4.02 billion. The stock has gained 41.4% year-to-date to close the last trading session at $10.90.
RICOY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Stability. Within the Technology – Hardware industry, it is ranked #10. Click here, to get all grades for RICOY’s Growth, Momentum, Sentiment, and Quality.
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HPQ shares were unchanged in after-hours trading Thursday. Year-to-date, HPQ has gained 24.26%, versus a 23.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More…
