The rise of innovative technologies and the growing popularity of digital transformation initiatives has significantly increased the appeal of specialized hardware solutions. The need for advanced hardware to realize the full potential of software and other new-age technologies is future-proofing the technology industry.
However, not all tech stocks are worth considering right now. I think it would be wise to wait for a better entry point into Apple, Inc. (AAPL). Meanwhile, investors could instead look to Murata Manufacturing Co. (MRAAY), Canon Inc. (CAJPY), and TransAct Technologies Incorporated (TACT), which have outperformed AAPL.
Before we dive deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is expected to perform well and why it would be wise to add AAPL to your watchlist.
The IT hardware industry is evolving as companies leverage technology to innovate, engage customers, and increase efficiency. The software works optimally with advanced hardware to ensure seamless functionality. Increased use of technology and rapid digital transformation projects are driving industry growth. The rise of hybrid work culture has increased the need for advanced hardware.
Businesses that invest in state-of-the-art equipment and hardware experience increased efficiency and productivity. According to Gartner, global IT spending is expected to reach $4.69 trillion in 2023, an increase of 3.5% over the previous year. In 2023, spending on devices is likely to decline by 10% year over year, but is expected to increase by 4.8% to $722.47 billion the following year.
The IT hardware market is expected to grow at a CAGR of 7.9% to reach $177.1 billion by 2028. The adoption of emerging technologies such as artificial intelligence, machine learning, and the Internet of Things is driving demand for specialized hardware for complex processing and data storage. requirements.
AAPL exceeded consensus EPS and revenue estimates during the last reported quarter. EPS beat consensus estimates by 4.8%, and revenue beat analyst estimates by 0.2%. Meanwhile, iPhone revenue set a record for the September quarter, and service revenue hit a new high. However, sales in the fourth quarter fell 1% year over year to $89.5 billion.
Product sales also decreased by 5.3% from the previous year to $67.18 billion. Mac and iPad sales decreased 33.8% and 10.2% from the previous year to $7.61 billion and $6.44 billion, respectively. In addition, wearables, home and accessories sales decreased 3.4% year over year to $9.32 billion. The company’s cash income from operating activities in fiscal 2023 also decreased by 9.5% from the previous year.
AAPL also trades at a premium valuation. In terms of future EV/EBITDA, AAPL’s 22.30x is 53.9% higher than the industry average of 14.49x. Similarly, the company’s forward EV/sales ratio of 7.40x is 180% higher than the industry average of 2.64x. His 40.86x forward price/volume for the company is 968.8% higher than his industry average of 3.82x.
AAPL stock has increased 28.4% over the past nine months and 46.7% since the beginning of the year, closing at $190.64.
While AAPL’s long-term growth prospects look exciting, it currently trades at a premium valuation. Additionally, a slowdown in smartphone sales could hamper the growth of its most popular product, the iPhone.
With this background in mind, let’s take a look at the fundamentals of the aforementioned stocks in the technology and hardware industry, starting with the top three stocks.
Stock number 3: Murata Manufacturing Co., Ltd. (Malay)
Headquartered in Nagaokakyo, Japan, MRAAY designs, manufactures, and sells ceramic-based passive electronic components and solutions in Japan and overseas. It operates through Components, Devices & Modules, and Other segments. The company offers capacitors, inductors, noise suppression products/EMI suppression filters/ESD protection devices, resistors, thermistors, sensors, and more.
On August 30, 2023, MRAAY announced the completion of a new production building in Lien Chieu district, Da Nang, Vietnam. The building will provide the infrastructure for the medium- to long-term production of inductor coils for automobiles and electronic devices.
On August 1, 2023, MRAAY’s manufacturing subsidiary Philippine Manufacturing Company announced that it will construct a new building in August 2023. Construction of the new production building is aimed at developing capacity to meet the increasing demand for multilayer ceramic capacitors across the media spectrum. And in the long run.
In terms of net profit margin over the past 12 months, MRAAY’s 13.86% is 683.5% higher than the industry average of 1.77%. Return on common equity was 8.87% and return on assets was 7.23%, significantly higher than the industry averages of 0.80% and 0.09%. The 12-month CapEx/Sales of 14.44% is 514.4% higher than the industry average of 2.35%.
MRAAY’s revenue for the second quarter ended September 30, 2023 was 442.66 billion yen ($2.99 billion). Operating income for the period was 88.81 billion yen ($600.67 million). The company’s net income was 74.98 billion yen ($507.14 million).
Additionally, net cash provided by operating activities for the six months ended September 30, 2023 was 191.66 billion yen ($1.3 billion), an increase of 23.1% from the same period last year.
Analysts expect MRAAY’s revenue for the quarter ending March 31, 2024 to be $2.59 billion, up 1.7% year-over-year. Shares have increased 17% since the beginning of the year, closing at $9.59.
MRAAY’s POWR rating reflects its solid outlook. POWR Ratings evaluates stocks by 118 different factors, each with its own weighting.
It is ranked 23rd out of 37 stocks in the Technology & Hardware industry with a B rating. In terms of quality, it is B grade. Click here to see additional ratings for MRAAY on Growth, Value, Momentum, Stability, and Sentiment.
Stock 2: Canon Inc. (cappy)
Headquartered in Tokyo, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through Printing Business Unit, Imaging Business Unit, Medical Business Unit, Industrial Business Unit, and Other segments.
On July 12, 2023, CAJPY announced the development of a process to separate plastic pieces based on their material, with the aim of improving plastic recycling efforts. They use tracked Raman spectroscopy technology, which allows for precise identification of materials, such as pieces of difficult black plastic or plastic pieces mixed with other colors.
CAJPY plans to introduce plastic sorting equipment using this method in the first half of 2024. This technology contributes to making plastic recycling more efficient and supporting a circular economy.
In terms of net profit margin over the past 12 months, CAJPY’s 6.44% is 264.1% higher than the industry average of 1.77%. Similarly, his EBIT margin of 8.93% for the company’s trailing twelve months is 86.7% higher than the industry average of his 4.78%. Additionally, the company’s return on total assets is 4.78%, which is significantly higher than the industry average of 0.09%.
CAJPY’s net sales for the second quarter ended September 30, 2023 were 1.3 trillion yen ($6.93 billion), an increase of 2.9% year-on-year. Operating income increased 1.5% year on year to 82.62 billion yen ($558.83 million). The company’s net income attributable to CAJPY increased 14.8% year over year to 62.13 billion yen ($420.22 million). Additionally, EPS was 62.62 yen, an increase of 18.4% compared to the same period last year.
Street expects CAJPY’s revenue to increase 1.8% year over year to $7.47 billion for the second quarter ending June 30, 2024. Shares have increased 14.7% over the past nine months, closing at $25.06.
It’s no wonder that CAJPY has an overall rating of “B”, which is equivalent to “buy” in our own rating system.
B grade for value, stability, and quality. It ranks 9th in the industry. In addition to the above, we also grade CAJPY’s growth, momentum, and sentiment. All CAJPY ratings are available here.
Stock #1: TransAct Technologies Incorporated (tact)
TACT designs, develops, and markets specialized transaction-based printers and terminals. The company offers thermal printers and terminals for generating labels, coupons, and transaction records. The company also offers consumables, replacement parts and accessories, maintenance and repair services, and remanufactured printers.
In terms of net profit margin over the past 12 months, TACT’s 6.56% is 270.8% higher than the industry average of 1.77%. Similarly, the company’s trailing-twelve-month His EBIT margin of 8.69% is 81.7% higher than the industry average of 4.78%. Additionally, the company’s trailing 12-month return on common equity was 13.99%, significantly higher than the industry average of 0.80%.
For the third quarter ended September 30, 2023, TACT’s net sales were $17.19 million and gross profit was $8.92 million, an increase of 8.8% from the same period last year. Adjusted operating income increased 207.8% year-on-year to $1.19 million. Adjusted net income increased 71.6% year over year to $906 million. Additionally, adjusted EPS was $0.09, representing an 80% year-over-year increase.
TACT’s fiscal 2023 revenue is expected to be $72.97 million, an increase of 25.5% from the prior year. It beat consensus EPS estimates in each of the trailing four quarters. Shares have increased 7.7% over the past year, closing at $6.75.
TACT’s POWR Rating reflects this promising outlook. According to our unique rating system, the overall rating is “A”, which is equivalent to “Strong Buy”.
A grade for value and sentiment, B grade for quality. Technology – Ranked #5 within the hardware industry. Click here to see additional ratings for TACT on Growth, Momentum, and Stability.
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MRAAY stock was unchanged in premarket trading Wednesday. Year-to-date, MRAAY is up 16.95%, compared to the benchmark S&P 500 index’s gain of 20.27% during the same period.
About the author: Dipanjan Vanture
Dipanjan has been interested in the stock market since his elementary school days. This earned him a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a keen interest in reading and analyzing emerging trends in financial markets. more…
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