If you analyze a company's top-line growth when evaluating its stock, the list below might be of interest to you.
To create the list below we began with a list of technology stocks that appear undervalued relative to earnings growth, with PEG below 1, and relative to free cash flow, with P/FCF below 15.
It wasn't sufficient to just find stocks that were undervalued by conventional valuations. We wanted to look at the financials to determine if the valuation was an attractive investment idea or a risky one.
After we found 19 stocks that looked undervalued, we did a deeper analysis on the financials. We found 3 stocks that with strong sales trends, comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables, the healthier the company's revenue.
We screened for stocks seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.
Interactive Chart: Press Play to compare changes in quarterly over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think it's time to buy these stocks? Us the list below as a starting point for your analysis:
1. Ebix Inc. (NASDAQ:EBIX): Provides on-demand software and e-commerce solutions to the insurance industry.
- Market cap at $577.31M, most recent closing price at $16.22.
- Revenue grew by 26.29% during the most recent quarter ($53.8M vs. $42.6M y/y). Accounts receivable grew by 19.08% during the same time period ($37.2M vs. $31.24M y/y). Receivables, as a percentage of current assets, decreased from 57.45% to 48.67% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
- PEG at 0.46, and Price/Free Cash Flow at 9.36. Ebix looks cheap relative to competitors: Cognizant Technology Solutions Corporation (P/FCF ratio at 27.63) and Automatic Data Processing, Inc. (P/FCF ratio at 61.58).
2. MagnaChip Semiconductor Corporation (NYSE:MX): Designs and manufactures analog and mixed-signal semiconductor products for high-volume consumer applications.
- Market cap at $612.43M, most recent closing price at $17.31.
- Revenue grew by 20.6% during the most recent quarter ($218.08M vs. $180.83M y/y). Accounts receivable grew by 14.72% during the same time period ($144.76M vs. $126.18M y/y). Receivables, as a percentage of current assets, decreased from 33.21% to 31.69% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
- PEG at 0.15, and Price/Free Cash Flow at 10.53. Compare this with competitors Linear Technology Corp. (P/FCF ratio at 37) and ARM Holdings plc (P/FCF ratio at 160.47).
3. Silicon Motion Technology Corp. (NASDAQ:SIMO): Operates as a fabless semiconductor company.
- Market cap at $398.72M, most recent closing price at $11.71.
- Revenue grew by 21.91% during the most recent quarter ($77.07M vs. $63.22M y/y). Accounts receivable grew by 5.41% during the same time period ($37.59M vs. $35.66M y/y). Receivables, as a percentage of current assets, decreased from 23.11% to 15.53% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
- PEG at 0.38, and Price/Free Cash Flow at 4.36. This looks cheap relative to competitors Amphenol Corporation (P/FCF ratio at 24.69) and Kyocera Corp. (P/FCF ratio at 34.56).
*Accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Rebecca Lipman, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.