So far, the S&P 500’s information technology sector is up 10% this year, offering some consolation to investors after falling 29% in 2022. On the other hand, the depressing new focus on cost cutting, including a painful round of layoffs, means It may benefit investors to see which companies were already improving their profit margins while growing sales during their most recent reported quarters.
Below is a screen of technology companies in the S&P 500 SPX,
that increased sales while improving profit margins during fiscal quarters ending December 31 or later. (About 20% of the S&P 500 have fiscal years that don’t match the calendar.)
Before showing the results of the screen, we need to define what constitutes a “tech stock” because the sectors of the benchmark index, as defined by S&P Dow Jones Indices, do not necessarily match investor perceptions.
Investors often think of the “FAANG” group of companies when considering technology stocks. These are Facebook holding company Meta Platforms Inc. META,
Apple Inc AAPL,
Amazon.com Inc. AMZN,
Netflix Inc.NFLX,
and Google holding company Alphabet Inc. google,
We can expand to a “FAANG+” group by Microsoft Corp. add MSFT,
and Tesla Inc. TSLA,
due to their importance within the S&P 500, which is weighted by market capitalization.
Of the seven companies in the FAANG+ group, only Apple and Microsoft are active in the information technology sector. Amazon and Tesla are in the consumer goods sector, while Meta, Alphabet and Netflix are in the communication services sector.
For our revenue growth and profitability screen, we’ve expanded the “tech stocks” group to include the 76 stocks in the S&P 500 IT sector, plus the five outside of the sector that make up the FAANG+ group above, along with three video game companies. developers for a total of 84 shares.
FAANG+ Screen
Before showing the full screen results, let’s start with the FAANG+ group. Here they are, ranked by how much their sales increased during their most recently reported quarters from a year earlier:
| Company | Ticker | Change in quarterly revenue from last year | Gross profit margin | Gross margin – quarter last year | Operating margin | Operating margin – quarter last year |
|
Tesla Inc. |
TSLA, |
37.2% |
23.76% |
27.35% |
20.25% |
19.53% |
| Amazon.com Inc. |
AMZN, |
8.6% | 42.60% | 39.72% | 10.84% | 9.67% |
|
Microsoft Corp. |
MSFT, |
2.0% |
66.85% |
67.21% |
45.59% |
49.77% |
|
Netflix Inc. |
NFLX, |
1.9% |
31.18% |
32.04% |
58.43% |
57.55% |
|
Alphabet Inc. Class A |
google, |
0.3% |
53.11% |
56.09% |
28.78% |
33.44% |
|
Meta Platforms Inc. Class A |
META, |
-4.5% |
78.63% |
81.15% |
40.33% |
43.36% |
|
Apple inc. |
AAPL, |
-5.5% |
42.96% |
43.76% |
33.23% |
35.65% |
A company’s gross margin is net sales less the cost of goods or services sold divided by sales. Net sales are sales minus returns and discounts, such as coupons. The cost of goods or services sold includes the actual cost of making the items or providing the services, including labor. It’s a useful measure of pricing power, and a combination of growing gross margin and rising sales is a good sign.
A company’s operating margin goes further, subtracting more overheads and other expenses not directly related to the production of goods and services sold. It is essentially earnings before interest and taxes (EBIT) divided by sales.
Of the companies in the FAANG+ group, only Amazon improved both margins and increased sales.
S&P 500 tech screen
On the full screen of 84 technology stocks, as defined above, 31 of the companies improved their gross margins on a quarterly basis from a year earlier, while 26 also improved their operating margins. Of these, 24 also increased sales. There they are:
| Company | Ticker | Change in quarterly revenue from last year | Gross profit margin | Gross margin – quarter last year | Operating margin | Operating margin – quarter last year |
|
Enphase Energy Inc. |
ENPH, |
75.6% |
42.29% |
39.57% |
24.36% |
16.64% |
|
SolarEdge Technologies Inc. |
SEDG, |
61.4% |
29.34% |
29.05% |
13.92% |
9.08% |
|
Monolithic Power Systems Inc. |
MPWR, |
36.7% |
58.22% |
57.61% |
32.36% |
25.70% |
|
Fortinet Inc. |
FTNT, |
33.1% |
76.38% |
75.60% |
29.92% |
24.80% |
|
Paycom Software Inc. |
PAYC, |
30.0% |
74.14% |
73.58% |
41.58% |
37.21% |
|
Microchip Technology Inc. |
MCHP, |
23.4% |
60.09% |
53.35% |
48.96% |
46.39% |
|
Analog Devices Inc. |
ADI, |
21.1% |
57.55% |
42.86% |
52.79% |
37.22% |
|
ServiceNow Inc. |
NOW, |
20.2% |
78.40% |
76.58% |
13.35% |
8.98% |
|
Ceridian HCM Holding Inc. |
CDAG, |
19.1% |
51.77% |
49.45% |
10.24% |
2.38% |
|
Broadcom Inc. |
AVGO, |
15.7% |
63.47% |
60.39% |
58.19% |
57.28% |
|
Salesforce Inc. |
CRM, |
14.4% |
72.29% |
64.43% |
26.44% |
15.17% |
|
ON Semiconductor Corp. |
ON, |
13.9% |
47.75% |
43.75% |
39.45% |
34.33% |
|
Hewlett Packard Enterprise Co. |
HPE, |
13.2% |
33.10% |
31.99% |
17.43% |
16.27% |
|
Automatic Data Processing Inc. |
ADP, |
9.1% |
48.27% |
46.16% |
27.82% |
25.55% |
|
NXP Semiconductors NV |
NXPI, |
9.0% |
53.80% |
51.69% |
38.68% |
36.76% |
|
Autodesk Inc. |
ADSK, |
8.9% |
91.65% |
89.84% |
23.82% |
15.27% |
|
Fisher Inc. |
FISV, |
8.8% |
57.29% |
48.20% |
41.57% |
30.09% |
|
Amazon.com Inc. |
AMZN, |
8.6% |
42.60% |
39.72% |
10.84% |
9.67% |
|
VeriSign Inc. |
VRSN, |
8.5% |
86.32% |
85.49% |
69.66% |
68.89% |
|
Amphenol Corp. Class A |
APH, |
7.0% |
32.03% |
31.10% |
24.20% |
24.08% |
|
Ansys Inc. |
ANS, |
5.9% |
90.61% |
89.03% |
43.04% |
41.42% |
|
Broadridge Financial Solutions Inc. |
BR, |
3.0% |
23.57% |
22.06% |
16.94% |
15.22% |
|
Electronic Arts Inc. |
EA, |
2.1% |
67.14% |
61.06% |
18.63% |
13.39% |
|
PTC Inc. |
PTC, |
1.8% |
77.72% |
77.37% |
29.99% |
26.07% |
|
Source: Fact Set |
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Click on the tickers for more information about each company.
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