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Technology Services Industry Boasts Encouraging Prospects
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Companies in the Zacks Technology Services industry are engaged in manufacturing, developing and designing of an array of software support, data processing, computing hardware and communications equipment. These include integrated powertrain technologies, advanced analytics, technology solutions and contract research services, semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems.
The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end-markets and customer base.
Prominent players from the industry include Aptiv PLC (APTV - Free Report) and IQVIA Holdings Inc (IQV - Free Report) .
Here are the industry’s three major themes:
The industry stands to benefit from the growing adoption of hybrid-cloud (which serves as a provisional path towards digital transformation) and multi-cloud model (to achieve better scalability and attain improved resource utilization). Many industry players are increasingly shifting toward the everything-as-a-service (XaaS) model, which includes capabilities such as platform-as-a-service, infrastructure-as-a-service, and software-as-service to develop and expand their cloud businesses.Technology companies are also offering new solutions like security-as-a-service, data-as-a-service, and device-as-a-service to help companies deliver XaaS benefits, such as operational efficiency and faster innovation. Implementation of technologies like the Internet of Things and edge computing, artificial intelligence, blockchain and biometrics, advanced data analytics and machine learning is also expanding scope for industry participants.
While mergers, acquisitions, and divestitures continue to act as feasible strategies for industry participants to expand into new markets and strengthen their customer bases, partnerships are now accepted in the form of multiplayer alliances where the finest capabilities of each company are combined to offer client-specific solutions. Maintaining a diverse workforce helps companies earn huge profits and promote ethical use of AI by reducing the potential for bias in certain applications.
Lack of skilled workers in the United States has been bothering industry participants for quite some time. Companies need to invest in training and educating their employees per the latest requirements. Further, service providers face cybersecurityissues (inclusive of AI-enabled attacks), regulatory hurdles and compliance-related issues due to operations across the globe.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #91. This rank places it in the top 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that investors can buy given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Technology Services industry has underperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 5.9% over this period against 22.2% rally of the broader sector and 18.6% rise of the Zacks S&P 500 composite.
One-Year Price Performance
Industry’s Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing technology services stocks, the industry is currently trading at 18.75X compared with the S&P 500’s 12.31X and the sector’s 12.78X.
Over the past two years, the industry has traded as high as 18.75X, as low as 6.48X and at the median of 11.49X, as the charts below show.
EV-to-EBITDA
Bottom Line
Growth opportunities from robust adoption of cloud computing and emerging technologies, multiplayer alliances and diversity in workforce should offset challenges arising from U.S. protectionism, global regulatory uncertainties and security issues.
Evoqua Water Technologies Corp.: This Pittsburgh-based company provides a range of water and wastewater treatment systems and technologies, and mobile and emergency water supply solutions and services for industrial, commercial, and municipal water treatment markets. Currently, it sports a Zacks Rank #1. The Zacks Consensus Estimate for current-year EPS has improved 3.5% in the past 90 days.
Price and Consensus: AQUA
Nomura Research Institute, Ltd.(NRILY - Free Report) : This Tokyo-basedcompany provides consulting, financial information technology (IT) solution, industrial IT solution, and IT platform service businesses primarily in Japan. Currently, it carries a Zacks Rank #1. The Zacks Consensus Estimate for current-year EPS has improved 21.8% in the past 90 days.
Price and Consensus: NRILY
GSX Techedu Inc. : This Beijing-based technology-driven education company provides online K-12 large-class after-school tutoring services in the People's Republic of China. Currently, it carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has increased 11.1% in the past 90 days.
Price and Consensus: GSX
Smiths Group plc (SMGZY - Free Report) : This London-based technology company serves the medical technology, security and defense, general industrial, energy, and space and aerospace markets worldwide.Currently, it has a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has improved 4.7% in the past 90 days.
Price and Consensus: SMGZY
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.7% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
Technology Services Industry Boasts Encouraging Prospects
Companies in the Zacks Technology Services industry are engaged in manufacturing, developing and designing of an array of software support, data processing, computing hardware and communications equipment. These include integrated powertrain technologies, advanced analytics, technology solutions and contract research services, semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems.
The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end-markets and customer base.
Prominent players from the industry include Aptiv PLC (APTV - Free Report) and IQVIA Holdings Inc (IQV - Free Report) .
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Bright Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #91. This rank places it in the top 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term growth prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that investors can buy given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Technology Services industry has underperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 5.9% over this period against 22.2% rally of the broader sector and 18.6% rise of the Zacks S&P 500 composite.
One-Year Price Performance
Industry’s Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing technology services stocks, the industry is currently trading at 18.75X compared with the S&P 500’s 12.31X and the sector’s 12.78X.
Over the past two years, the industry has traded as high as 18.75X, as low as 6.48X and at the median of 11.49X, as the charts below show.
EV-to-EBITDA
Bottom Line
Growth opportunities from robust adoption of cloud computing and emerging technologies, multiplayer alliances and diversity in workforce should offset challenges arising from U.S. protectionism, global regulatory uncertainties and security issues.
Here are four stocks from the Zacks Technology Services industry that carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Evoqua Water Technologies Corp.: This Pittsburgh-based company provides a range of water and wastewater treatment systems and technologies, and mobile and emergency water supply solutions and services for industrial, commercial, and municipal water treatment markets. Currently, it sports a Zacks Rank #1. The Zacks Consensus Estimate for current-year EPS has improved 3.5% in the past 90 days.
Price and Consensus: AQUA
Nomura Research Institute, Ltd.(NRILY - Free Report) : This Tokyo-based company provides consulting, financial information technology (IT) solution, industrial IT solution, and IT platform service businesses primarily in Japan. Currently, it carries a Zacks Rank #1. The Zacks Consensus Estimate for current-year EPS has improved 21.8% in the past 90 days.
Price and Consensus: NRILY
GSX Techedu Inc. : This Beijing-based technology-driven education company provides online K-12 large-class after-school tutoring services in the People's Republic of China. Currently, it carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has increased 11.1% in the past 90 days.
Price and Consensus: GSX
Smiths Group plc (SMGZY - Free Report) : This London-based technology company serves the medical technology, security and defense, general industrial, energy, and space and aerospace markets worldwide.Currently, it has a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has improved 4.7% in the past 90 days.
Price and Consensus: SMGZY
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.7% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>