Growing investments in digitization and the adoption of emerging technologies are driving the demand for cutting-edge hardware solutions. Specialized hardware improves productivity and simplifies operations.
In this piece, I have discussed why fundamentally strong technology hardware stocks Murata Manufacturing Co., Ltd. (MRAAY), NetApp Inc. (NTAP), and Canon Inc. (CAJPY) could be better investments than GoPro, Inc. (GPRO).
With advanced hardware and equipment, software becomes more relevant. Hardware can range from personal computers, printers, keyboards, networking components, data centers, servers, tablets, graphic processing units (GPUs), etc. The global hardware market is projected to reach $164.21 billion by 2027, growing at a CAGR of 7.9%.
However, action camera company GoPro, Inc. (GPRO) is facing challenges due to consumers reducing their discretionary spending amidst uncertain macroeconomic conditions. During the second quarter, GPRO reported net losses, a declining average selling price, and lower gross margins, which indicate its financial challenges.
For the second quarter ended June 30, GPRO's revenue decreased by 3.9% year-over-year to $241.02 million. Its non-GAAP gross margin fell 690 bps to 31.6%. The company reported a non-GAAP net loss of $11.29 million, compared to a non-GAAP net income of $12.79 million. In addition, its non-GAAP loss per share came in at $0.07, compared to a non-GAAP EPS of $0.08 in the prior-year quarter.
While GPRO’s subscriber count grew, a shift to entry-level products and increased competition raised concerns about its profitability and market position.
Moreover, the average selling price of ‘GoPro cameras’ decreased by 13% year-over-year, suggesting potential pricing pressure or a shift in consumer preferences towards lower-priced products. GPRO implemented a strategy shift, returning to pre-pandemic pricing and emphasizing retail sales, indicating potential competition-related challenges that might affect their performance.
The company guided for a soft third quarter on the back of retailers continuing to carry lower weeks of supply.
For the third quarter. GPRO expects revenue of approximately $280 million plus or minus $10 million, down 8% year-over-year. Its ASP is expected to be approximately $355, down 7% year-over-year. Its gross margin is expected to be 34% at the midpoint of guidance, down 38% year-over-year. The company expects subscribers to grow to 2.5 million by the end of the third quarter.
While the retail channel sell-through of its cameras is expected to grow, the company expects it to take longer than previously anticipated to offset the larger-than-expected decline in flagship camera sales on its website. These factors could push its 2024 sales to approximately 3.4 million to 3.6 million units, down from the previous expectations of 3.5 million to 4 million units.
Considering GPRO’s results and outlook, it could be wise to wait for a better entry point in the stock. Now let’s examine the fundamentals of the three Technology – Hardware stocks, beginning with the third choice.
Stock #3: Murata Manufacturing Co., Ltd. (MRAAY)
Headquartered in Nagaokakyo, Japan, MRAAY designs, manufactures, and sells ceramic-based passive electronic components and solutions in Japan and internationally. It operates through Components, Devices and Modules, and other segments.
On August 30, 2023, MRAAY announced the completion of a new production building in Lien Chieu District, Da Nang City, Vietnam. This building will manufacture coil products, particularly inductor coils for cars and electronic devices, to meet the growing demand in the medium to long-term capacity.
On June 26, 2023, MRAAY announced a new ultrasonic sensor device called the MA48CF15-7N. This sensor is designed for automotive applications and boasts high sensitivity, rapid responsiveness, and a hermetically-sealed package to protect against liquid ingress for improved usability and temperature performance.
In terms of forward non-GAAP EV/EBITDA, MRAAY’s 10.72x is 26.4% lower than the 14.57x industry average.
In terms of the trailing-12-month EBITDA margin, MRAAY’s 26.18% is 189.7% higher than the 9.04% industry average. Likewise, its 14.13% trailing-12-month net income margin is 594.7% higher than the 2.03% industry average. Additionally, its 13.62% trailing-12-month Capex/Sales is 462.7% higher than the 2.42% industry average.
MRAAY’s revenues for the fiscal first quarter that ended June 30, 2023, came in at ¥367.69 billion ($2.49 billion). Its operating profit for the period came in at ¥50.11 billion ($339.14 million). The company’s profit attributable to owners of parent came in at ¥50.10 billion ($339.07 million).
Additionally, its cash flows from operating activities increased 81.1% year-over-year to ¥59.37 billion ($401.81 million). Also, its EPS came in at ¥79.56.
Analysts expect MRAAY’s revenue for the quarter ending March 31, 2024, to increase 6.4% year-over-year to $2.72 billion. The stock has gained 11.9% year-to-date to close the last trading session at $13.76.
MRAAY has a B grade for Quality. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #17 out of 42 stocks in the Technology - Hardware industry. It has a B grade for Quality. Click here to see the additional ratings of MRAAY’s for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: NetApp, Inc. (NTAP)
NTAP provides cloud-led and data-centric services to manage and share data on-premises, and private and public clouds worldwide. It operates in two segments: Hybrid Cloud and Public Cloud. The company offers intelligent data management software and storage infrastructure solutions.
On July 11, 2023, NTAP announced the renewal of its strategic alliance and co-engineering partnership with DreamWorks Animation, remaining their preferred cloud data services provider to enhance productivity, flexibility, and agility in their hybrid cloud environment.
In terms of forward non-GAAP P/E, NTAP’s 13.80x is 40.1% lower than the 23.04x industry average. Its 9.14x forward EV/EBITDA is 37.3% lower than the 14.57x industry average. Likewise, its 10.55x forward EV/EBIT is 43% lower than the 18.49x industry average.
In terms of the trailing-12-month EBITDA margin, NTAP’s 21.01% is 132.5% higher than the 9.04% industry average. Likewise, its 158.04% trailing-12-month Return on Common Equity is significantly higher than the 0.62% industry average. Additionally, its 19.01% trailing-12-month Return on Total Capital is 702.8% higher than the 2.37% industry average.
For the first quarter ended July 28, 2023, NTAP’s net revenue came in at $1.43 billion. Its non-GAAP gross profit came in at $1.01 billion. Its non-GAAP net income came in at $249 million. Also, its non-GAAP net income per share came in at $1.15. In addition, the company’s net cash provided by operating activities rose 61.2% from the year-ago quarter to $453 million.
For the quarter ending January 31, 2024, NTAP’s EPS and revenue are expected to increase 11.4% and 1.8% year-over-year to $1.53 and $1.55 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 31.7% year-to-date to close the last trading session at $79.09.
NTAP has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality. It is ranked #15 in the same industry. To see NTAP’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
Stock #1: Canon Inc. (CAJPY)
Headquartered in Tokyo, Japan, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through a Printing Business Unit, an Imaging Business Unit, a Medical Business Unit, an Industrial Business Unit, and other segments.
On July 12, 2023, CAJPY announced the development of a process for sorting plastic pieces based on their material, aiming to improve plastic recycling efforts. They are using tracking type Raman spectroscopy technology, which allows for the accurate identification of materials, including challenging black plastic pieces and those mixed with other colors.
CAJPY plans to introduce plastic sorting equipment using this method in the first half of 2024. This technology will contribute to more efficient plastic recycling and support a circular economy.
On March 23, 2023, CAJPY announced its acquisition of assets from Kyoto Seisakusho Co., Ltd., including technology for mass production of cells for medical applications. This move aims to enhance CAJPY's presence in the field of Bio-science and accelerate advancements in regenerative medicine.
In terms of forward EV/Sales, CAJPY’s 0.90x is 67.3% lower than the 2.74x industry average. Its 6.17x forward EV/EBITDA is 57.7% lower than the 14.57x industry average. Likewise, its 0.81x forward Price/Sales is 69.2% lower than the 2.64x industry average.
In terms of the trailing-12-month net income margin, CAJPY’s 6.29% is 209.3% higher than the 2.03% industry average. Likewise, its 9.04% trailing-12-month EBIT margin is 101.8% higher than the 4.48% industry average. Additionally, its 8.11% trailing-12-month Return on Common Equity is significantly higher than the 0.62% industry average.
CAJPY’s net sales for the second quarter ended June 30, 2023, increased 2.2% year-over-year to ¥1.02 trillion ($69 billion). Its operating profit came in at ¥92.27 billion ($624.48 million). The company’s net income attributable to CAJPY increased 10.8% year-over-year to ¥65.40 billion ($442.64 million).
In addition, its EPS came in at ¥64.75, representing an increase of 13.9% year-over-year.
Street expects CAJPY’s revenue for the quarter ending September 30, 2023, to increase 4.8% year-over-year to $7.13 billion. Over the past six months, the stock has gained 12.4% to close the last trading session at $24.10.
It’s no surprise that CAJPY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #8. In total, we rate CAJPY on eight different levels. Beyond what we stated above, we also have given CAJPY grades for Growth, Momentum, and Sentiment. Get all the CAJPY 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:
MRAAY shares were trading at $13.91 per share on Monday afternoon, up $0.15 (+1.09%). Year-to-date, MRAAY has gained 13.09%, versus a 18.15% 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.
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