Are you an active investor in the tech sector? Are you looking to stay cautious in 2013? If so, here is a list of companies that might interest you.
We began by looking for technology stocks with troubling fundamental signs. While there are many ways to go about this, we chose to look for names with falling top-line growth.
We looked for those stocks with negative trends in revenue relative to accounts receivable, with slower growth in revenue year-over-year than growth in accounts receivable, as well as receivables comprising a larger portion of current assets.
Receivables represent the portion of revenue not yet collected, so the smaller the portion of revenue and current assets, the better.
Finally, we researched the 13F's of all the technology companies with declining sales trends for those with bearish sentiment from institutional investors, with significant net institutional sales over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to underperform.
We were left with 3 companies on our list.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
A Closer Look
We took a closer look at BroadSoft, Inc. (BSFT). The stock trades around $36.78 versus its 52-week range of $20.13-$45.32, up 14% in the past 1-year. The stock trades with a P/E multiple of 27 times. It does not pay a dividend.
In addition to the troubling sales trends mentioned earlier, the balance sheet continues to add risk to the fundamentals. As of September 30th, 2012, BroadSoft has $152 million in cash and short-term investments, and $86 million in long-term debt. This primarily consists of $85 million in Convertible notes due 2018.
We encourage investors to track potential acquisitions going forward. With a limited amount of liquidity, and long-term debt obligations, any significant acquisition will be looked at negatively. In the past, the company assumed five installment loans to fund its acquisition of Movial Applications.
Also, BroadSoft has survived in an industry with great potential for consolidation. On February 4th, 2012, Oracle (ORCL) announced its intention to buy Acme Packet (APKT), which created volatility in stocks like BroadSoft. Will BroadSoft be the next buyout target?
Do you think it's time to stay cautious of these stocks? Use the list below as a starting point for your analysis.
1. BroadSoft, Inc. : Provides software that enables fixed-line, mobile, and cable service providers to deliver voice and multimedia services over Internet protocol (IP) based networks.
- Market cap at $1.01B, most recent closing price at $36.76.
- Net institutional sales in the current quarter at -2.1M shares, which represents about 7.64% of the company's float of 27.48M shares. The top 2 holders of the stock are Wells Fargo & Co., and Wellington Management.
- Revenue grew by 12.58% during the most recent quarter ($40.17M vs. $35.68M y/y). Accounts receivable grew by 23.62% during the same time period ($41.55M vs. $33.61M y/y). Receivables, as a percentage of current assets, increased from 15.04% to 17.6% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
2. Consolidated Communications Holdings Inc. (CNSL): Provides telecommunications services to residential and business customers in Illinois, Texas, and Pennsylvania.
- Market cap at $691.02M, most recent closing price at $17.31.
- Net institutional sales in the current quarter at -5.8M shares, which represents about 15.55% of the company's float of 37.31M shares. The top 2 holders of the stock are The Vanguard Group, and BlackRock Fund Advisors.
- Revenue grew by 69.65% during the most recent quarter ($157.01M vs. $92.55M y/y). Accounts receivable grew by 80.4% during the same time period ($72.14M vs. $39.99M y/y). Receivables, as a percentage of current assets, increased from 26.22% to 61.95% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
3. Shanda Games Limited (GAME): Engages in the development and operation of online games in the People's Republic of China.
- Market cap at $849.21M, most recent closing price at $3.10.
- Net institutional sales in the current quarter at -11.1M shares, which represents about 18.67% of the company's float of 59.44M shares. The top 2 holders of the stock are Prudential Plc., and Capital International Inc.
- Revenue grew by -20.13% during the most recent quarter ($1,080.5M vs. $1,352.8M y/y). Accounts receivable grew by 86.44% during the same time period ($2,479.9M vs. $1,330.1M y/y). Receivables, as a percentage of current assets, increased from 24.78% to 35.39% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
*Accounting data sourced from Google Finance, all other data sourced from Finviz. Institutional data sourced from Fidelity.