Despite the challenges faced by the technology industry in the past year, including multi-decade high inflation, aggressive rate hikes by the Fed, and significant layoffs, the tech industry remains buoyant due to the increasing demand for tech hardware solutions.
Hence, fundamentally strong tech stock AstroNova, Inc. (ALOT) could be a solid buy. However, I think investors could wait for a better entry point in Cricut, Inc. (CRCT) and avoid Western Digital Corporation (WDC).
The tech-heavy Nasdaq Composite has soared 40.4% over the past year, reflecting the robust performance of technology-related stocks fueled by ongoing innovations, increased demand for digital solutions amid accelerated digital transformation, and the widespread adoption of remote work.
Besides, the tech industry has been constantly evolving to meet the escalating demand for groundbreaking and inventive solutions. The tech industry’s critical role in diverse sectors like business, healthcare, education, finance, entertainment, and government contributes to the rising demand for IT hardware sector.
Moreover, the global IT hardware market is propelled by the growing digitization of the public sector. Governments worldwide are embracing digital technologies to improve service delivery, enhance efficiency, and offer citizen-centric solutions.
The IT hardware market is estimated to reach $130.86 billion this year and is further expected to grow at a CAGR of 7.9%, reaching $191.03 billion by 2029.
In addition, according to projections by Gartner, global IT spending is anticipated to reach $5.10 trillion in 2024, marking an 8% increase from the preceding year. While the impact of generative AI on IT spending is presently limited, substantial investments in AI are playing a crucial role in the overall growth of IT expenditures.
However, the IT hardware market faces a challenge due to growing concerns about e-waste, which encompasses discarded or obsolete electronic devices, including IT hardware components. Moreover, high inflation and interest rates further impact the industry.
Considering these trends, let's take a look at the fundamentals of the three Technology – Hardware stocks.
Stock to Buy:
AstroNova, Inc. (ALOT)
ALOT designs, develops, manufactures, and distributes specialty printers and data acquisition and analysis systems, including hardware and software, which incorporate advanced technologies to acquire, store, analyze, and present data in multiple formats. The company operates in two segments: Product Identification (PI); and Test & Measurement (T&M).
ALOT’s trailing-12-month EBIT margin of 6.96% is 40.9% higher than the industry average of 4.94%. The stock’s trailing-12-month levered FCF margin of 18.65% is 115.6% higher than the industry average of 8.65%.
In the fiscal 2024 third quarter, which ended on October 28, 2023, ALOT’s net revenue amounted to $37.55 million and its gross profit grew 18.4% from the prior-year quarter to $14.78 million. Moreover, the company’s non-GAAP net income and non-GAAP EPS amounted to $2.75 million and $0.37, up 231.9% and 825% from the prior-year quarter, respectively. Also, its non-GAAP operating income improved 123.8% year-over-year to $4.62 million.
ALOT’s shares have surged 30.9% over the past three months to close the last trading session at $17.02.
ALOT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has a B grade for Growth, Value, Stability, and Sentiment. Among the 37 stocks in the A-rated Technology – Hardware industry, it is ranked first.
In addition to the POWR Ratings stated above, access ALOT’s Momentum and Quality ratings here.
Stock to Watch:
Cricut, Inc. (CRCT)
CRCT engages in the design and marketing of a creativity platform that enables users to turn ideas into professional-looking handmade goods. It operates in three segments, Connected Machines; Subscriptions; and Accessories and Materials.
CRCT’s trailing-12-month levered FCF margin of 37.30% is 595.2% higher than the industry average of 5.37%. But its trailing-12-month ROCE of 8.39% is 26.4% lower than the 11.40% industry average.
CRCT’s total revenue declined 1.2% year-over-year to $174.91 million. However, total operating expenses declined 9.6% from the prior-year quarter to $58.25 million. Its net income rose 38.4% and 33.3% year-over-year to $17.23 million and $0.08 per share.
While Street expects CRCT’s EPS to rise 16.4% from the prior-year quarter to $0.06 in the fiscal fourth quarter ended December 2023, its revenue is likely to fall 9.5% year-over-year to $254.11 million in the same quarter.
The stock has declined marginally intraday, closing the last trading session at $6.44.
CRCT’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Growth and Momentum. It is ranked #19 in the same industry.
Click here to see CRCT’s additional Value, Stability, and Sentiment ratings.
Stock to Sell:
Western Digital Corporation (WDC)
WDC develops, manufactures, and sells data storage devices and solutions internationally. It offers client devices, including hard disk drives and solid state drives for computing devices. It also provides data center devices and solutions, comprising enterprise helium hard drives and enterprise SSDs.
WDC’s trailing-12-month gross profit margin of 8.87% is 82% lower than the 49.14% industry average. Its trailing-12-month levered FCF margin of negative 3.84% is significantly lower than the 8.65% industry average.
WDC’s non-GAAP revenue declined 26.4% year-over-year to $2.75 billion for the fiscal first quarter, which ended September 29, 2023. The company’s non-GAAP operating loss stood at $443 million. Its non-GAAP net loss stood at $554 million and $1.76 per share.
Analysts expect WDC’s EPS to decline 173.1% year-over-year to negative $1.15 in the fiscal second quarter ended December 2023. Its revenue in the same quarter is expected to decrease by 3.7% year-over-year to $2.99 billion.
Over the past five days, the stock has lost 1.6% to close the last trading session at $50.19.
WDC’s bleak prospects are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
WDC has a D grade for Growth, Value, Stability, Quality, and Sentiment. Among the same industry, WDC is ranked #33.
Beyond what we’ve stated above, we have also rated the stocks for Momentum. Access all WDC ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
CRCT shares were trading at $6.44 per share on Tuesday morning, down $0.00 (0.00%). Year-to-date, CRCT has declined -2.28%, versus a -0.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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