Amid rising IT spending and expanding the realm of generative AI initiatives, investors are eyeing high-PE tech stocks as potential growth catalysts in their portfolios. Therefore, considering investments in high-PE tech stocks like Pure Storage, Inc. (PSTG), N-able, Inc. (NABL), and AvePoint, Inc. (AVPT) could be prudent, given their solid fundamentals and promising growth prospects.
In the evolving enterprise technology landscape, IT service providers have long relied on managing complex IT ecosystems for their clients. Now, with the rise of generative AI, enterprises are increasingly investing in AI to automate and optimize IT management.
This shift presents a significant growth opportunity, with the gen AI services market projected to exceed $200 billion by 2029. If IT providers can grab a piece of that pie, their profits could increase by as much as 30%.
Adding to this optimistic outlook, Gartner predicts a robust growth trajectory for global IT spending, anticipated to surge to $5.06 trillion in 2024, marking an 8% increase from the previous year. A substantial portion of this spending will be driven by growing generative AI initiatives to enhance operational efficiencies and drive innovation across industries.
Moreover, the software market is set to reach $698.80 billion in revenue by 2024, with the U.S. expected to lead with $353.50 billion. This market is poised to grow at a steady CAGR of 5.3% through 2028, reaching an estimated $858.10 billion. Such robust growth forecasts underscore the lucrative opportunities within the tech sector, particularly for companies at the forefront of AI innovation and digital transformation.
Besides, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 38.7% returns over the past nine months.
Despite many tech stocks commanding high PE ratios, investors are betting on their future growth and profit potential. Thanks to their strong growth prospects, dominant market positions, and scalable business models, these companies are seen as capable of delivering substantial returns.
However, investors must thoroughly evaluate the stocks’ fundamentals, market dynamics, and associated risks before making any investment commitments.
So, let’s dig deeper into the fundamentals of the three tech stocks: PSTG, NABL, and AVPT. These stocks have elevated PE ratios, justifying their premium valuation due to promising growth prospects, market dominance, and innovative prowess.
Pure Storage, Inc. (PSTG)
PSTG provides data storage and management technologies, products, and services in the United States and internationally. The company’s Purity software is shared across its products and provides enterprise-class data services.
On June 5, 2024, PSTG announced a strategic investment in LandingAI, the leading visual AI company, to advance vision AI technology. This collaboration aims to integrate PSTG's data storage platform with LandingAI's Large Vision Model (LVM) solutions, enhancing enterprises' AI capabilities. It would enable enterprises to better utilize AI for complex image and video data, driving innovation and competitive advantage in the AI/ML sector.
In terms of forward non-GAAP P/E, PSTG is trading at 40.24x, 69.1 higher than the industry average of 23.79x. Likewise, the stock’s forward EV/Sales and Price/Sales multiples of 6.20 and 6.66 are 112.3% and 129.6% above their respective industry averages of 2.92 and 2.90.
PSTG’s trailing-12-month gross profit margin of 71.68% is 45.4% higher than the industry average of 49.30%. Similarly, its trailing-12-month levered FCF margin and ROCE of 15.58% and 8.22% are 58.1% and 93.7% higher than the industry averages of 9.85% and 4.24%, respectively.
For the fiscal first quarter that ended May 5, 2024, PSTG’s total revenue increased 17.7% year-over-year to $693.48 million. Its non-GAAP gross profit grew 20.4% from the year-ago value to $512.16 million. The company’s non-GAAP net income improved by 334.7% and 300% from the prior year’s quarter to $107.30 million and $0.32 per share, respectively. Also, its non-GAAP free cash flow stood at $172.68 million, up 41.7% year-over-year.
Analysts expect PSTG’s EPS for the second quarter ending July 2024, to increase 8.2% year-over-year to $0.37. The company’s revenue is expected to grow 9.8% year-over-year to $756.09 million for the same quarter. Further, PSTG topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is excellent.
PSTG’s stock has gained 82.9% over the past nine months to close the last trading session at $64.21.
PSTG’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Growth and Quality. PSTG is ranked first in the A-rated Technology – Storage industry.
Click here to access all PSTG ratings (Value, Momentum, Stability, and Sentiment).
N-able, Inc. (NABL)
NABL provides cloud-based software solutions for managed service providers (MSPs) globally. Their platform supports digital transformation and growth for small and medium-sized enterprises, serving as an integrated, enterprise-grade operating system that scales with MSP businesses.
On May 21, NABL announced its collaboration with MSPAlliance to help managed service providers (MSPs) meet compliance requirements proactively using MSPAlliance’s Cyber Verify program. This initiative allows N-able partners to identify gaps, certify compliance, and offer Compliance-as-a-Service solutions to their customers.
In terms of forward non-GAAP P/E, NABL is trading at 36.77x, which is 54.5% higher than the industry average of 23.79x. The stock’s forward EV/EBITDA of 18.59x is 25.9% higher than the industry average of 14.75x. Also, its forward EV/Sales multiple of 6.57 is 124.9% above the industry average of 2.92.
NABL’s trailing-12-month gross profit margin of 84.29% is 70.9% higher than the industry average of 49.30%, while its trailing-12-month levered FCF margin of 14.79% is 50.1% higher than the industry average of 9.85%. Also, the stock’s 4.36% trailing-12-month ROTC is 62.9% above the industry average of 2.68%.
NABL’s revenue for the fiscal first quarter ended March 31, 2024, increased 13.9% year-over-year to $113.75 million. Its gross profit rose 14.2% from the prior year’s quarter to $95.45 million, while its non-GAAP operating income grew 22.6% from the year-ago value to $33.21 million. The company’s non-GAAP net income and non-GAAP EPS amounted to $19.84 million and $0.11, reflecting an increase of 32.5% and 37.5% year-over-year, respectively.
The consensus EPS estimate of $0.10 for the second quarter (ended June 2024) indicates a 15.5% increase year-over-year. The consensus revenue estimate of $116.83 million for the same quarter reflects a 10.1% improvement from the prior year’s period. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of NABL have gained 20.7% over the past month to close the last trading session at $15.23.
NABL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade in Growth, Stability, and Sentiment. It is ranked #18 out of 79 stocks in the Technology – Services industry.
Click here to see the additional ratings for NABL (Value, Momentum, and Quality).
AvePoint, Inc. (AVPT)
AVPT provides a global cloud-native data management software platform, serving organizations across various regions, including North America, Europe, the Middle East, Africa, and Asia Pacific. The company specializes in software-as-a-service solutions and productivity applications, offering modular and cloud services architecture.
On June 26, the company announced it had won its sixth global Microsoft Partner of the Year Award, this time in the Education category. It was recognized among the top Microsoft partners worldwide for its excellence in innovation and implementation of customer solutions based on Microsoft technology.
In April, AVPT announced new analytics capabilities in its tyGraph solution, specifically for Copilot for Microsoft 365. This enhancement allows organizations to measure and optimize their usage and impact of Copilot, helping them unlock AI investments and improve employee experience.
In terms of forward non-GAAP P/E, AVPT is trading at 62.57x, 162.9% higher than the industry average of 23.79x. The stock’s forward EV/Sales of 5.43x is 85.9% higher than the industry average of 2.92x. Also, its forward Price/Cash Flow multiple of 49.62 compares with the 24.12x industry average.
AVPT’s trailing-12-month gross profit margin of 72.10% is 46.3% higher than the industry average of 49.30%. Similarly, its trailing-12-month levered FCF margin of 16.39% is 66.3% higher than the industry average of 9.85%.
AVPT’s total revenue for the fiscal first quarter that ended March 31, 2024, increased 225.1% from the year-ago value to $74.53 million. Its non-GAAP gross profit for the quarter stood at $55.20 million, up 29.6% year-over-year. The company’s non-GAAP operating income amounted to $6.61 million compared to a loss of 329 thousand in the prior year quarter. Also, its net cash inflow from operating activities improved considerably from the year-ago value to $7.77 million.
Street expects AVPT’s revenue and EPS for the third quarter ending September 2024 to increase 13.6% and 69.5% year-over-year to $82.68 million and $0.05, respectively. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters, which is remarkable.
Over the past year, the stock has gained 82.2%, closing the last trading session at $10.42.
AVPT’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
AVPT also has a B grade for Growth, Sentiment, and Quality. Within the same Technology – Services industry, it is ranked #14. To see the additional POWR Ratings of AVPT for Value, Momentum, and Stability, click here.
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PSTG shares were trading at $64.99 per share on Monday afternoon, up $0.78 (+1.21%). Year-to-date, PSTG has gained 82.25%, versus a 15.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
The post 3 High-PE Tech Stocks to Watch for Explosive Growth appeared first on StockNews.com
