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Weekly BullsEye | Wondering Which Tech Stock To Invest In Such Difficult Time? Here Is A 'Hidden Gem'

AInvestWednesday, Feb 21, 2024 1:20 am ET
2min read

Since last year, tech stocks have continually been the golden eggs of the market. For investors, the challenge has always been how to correctly identify a tech stock to invest in. At a time when Tesla's share price plunges, Apple is struggling, and Nvidia is too expensive, we believe that more consideration can be given to Trimble.

Innovative Technology

As a high-tech company engaged in the development and application of surveying and mapping technology, Trimble's technologies and products have great potential to become an integral part of its customers' daily workflows. While the company's history lies in hardware solutions that provide precise positioning, its future lies in supplanting that with modeling and data analytics capabilities to enhance its customer's daily activities.

For example, solutions like of Trimble Construction One (TC1) will aid their customers in designing and managing projects more precisely while receiving and analyzing real-time workflow data in the future.

Promising Growth Prospects

Meanwhile, Trimble's future also lies in growing its subscription and services revenue, and this tends to be a higher-margin activity. As time progresses, Trimble's margin is expected to increase. Moreover, with the company's transition, keen attention isn't so much on its revenue and earnings as its annual recurring revenue (ARR) and free cash flow (FCF).

ARR refers to the annualized value of its subscription, maintenance and support, and recurring transaction revenue, representing its recurring revenue. As ARR grows, it will increase cash flow - a common concept among companies growing their recurring revenues.

In its recent earnings call, Trimble's CEO Rob Painter stated that within the company's architects, engineers, contractors, and owners (AECO) end market, Trimble's TC1 would serve as a commercial framework around prepackaged bundled offerings.

This allows Trimble to sell more software to its customers within that framework as it develops new solutions, and customers adopt its technology more frequently. This also aids the company's cross-selling strategies. As Painter noted, As measured by cross-sell activity, more than 20% of 2023 annualized contract value, or ACV bookings and AECO were cross-sell bookings. In the fourth quarter, this number rose to over 25%.

Additionally, Trimble's free cash flow growth rate is considerably strong. The company grew its FCF by 60% in 2023 to $555 million, converting it from non-GAAP (adjusted) net income at a rate of 80%.

In 2024, management expects to convert 85% of FCF from non-GAAP net income. The non-GAAP earnings per share are estimated to be between $2.60 to $2.70 (net income is used to calculate EPS), so based on an 85% conversion rate, its FCF per share will be within the range of $2.21 per share to $2.30, or about $550 million to $570 million.

Besides all these facts and numbers, another thing you need to know about this stock is it is also highly beloved by Ark Investment Management CEO Cathie Wood, who is great at finding and investing in promising tech companies. So, what are you waiting for?

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.