Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

To create the list below we started with a universe of technology companies with a debt-to-equity ratio of less than 0.1. This allowed us to focus on strong credit quality companies. Also, when we analyzed the balance sheet we focused on the total debt of the company instead of only long-term debt.

Debt is only one figure investors should consider when analyzing a stock. This positive attribute may deflect attention from troubling trends in the balance sheet. So to find names that investors should approach with caution we pulled 2 other statistics from the balance sheets, namely the growth in receivables and inventories.

To identify negative trends we started by identifying stocks with growth in quarterly revenue slower than growth in quarterly inventory year-over-year. We also looked for companies with quarterly inventory increasing as a percent of current assets.

Why? When revenue is growing slower than inventory, it may indicate that the company is having trouble selling its inventory - although this might just indicate inventory building or a change in sales policies.

Receivables are considered to be an asset but it represents the portion of revenue not yet collected. It therefore becomes a risk when receivables grow and revenues decline. We looked through the balance sheets to find those 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.

The List

We were left with 5 companies on our list. All have troubling accounting signals and low debt.

Click play below for the change in quarterly sales of the 5 technology companies on our list.

Do you think its time to become cautious of these companies by looking beyond their credit? Use the list below as a starting point for your analysis.

1. Coherent Inc. (NASDAQ:COHR): Provides photonics-based solutions for commercial and scientific research applications worldwide.

  • Market cap at $1.36B, most recent closing price at $56.35.
  • Revenue grew by -3.97% during the most recent quarter ($183.2M vs. $190.77M y/y). Accounts receivable grew by 18.41% during the same time period ($154.62M vs. $130.58M y/y). Receivables, as a percentage of current assets, increased from 23.43% to 28.04% during the most recent quarter (comparing 13 weeks ending 2012-12-29 to 13 weeks ending 2011-12-31).
  • Inventory grew by 14.15% during the same time period ($169M vs. $148.05M y/y). Inventory, as a percentage of current assets, increased from 26.57% to 30.64% during the most recent quarter (comparing 13 weeks ending 2012-12-29 to 13 weeks ending 2011-12-31).
  • Debt-to-equity at 0.

2. Infinera Corporation (NASDAQ:INFN): Provides optical networking systems based on photonic integration technology in the United States.

  • Market cap at $763.88M, most recent closing price at $6.62.
  • Revenue grew by 14.33% during the most recent quarter ($128.06M vs. $112.01M y/y). Accounts receivable grew by 34.15% during the same time period ($109.95M vs. $81.96M y/y). Receivables, as a percentage of current assets, increased from 21.39% to 25.6% during the most recent quarter (comparing 3 months ending 2012-12-29 to 3 months ending 2011-12-31).
  • Inventory grew by 43.61% during the same time period ($127.81M vs. $89M y/y). Inventory, as a percentage of current assets, increased from 23.22% to 29.76% during the most recent quarter (comparing 3 months ending 2012-12-29 to 3 months ending 2011-12-31).
  • Debt-to-equity at 0.

3. Lattice Semiconductor Corporation (NASDAQ:LSCC): Designs, develops, manufactures, and markets programmable logic products and related software.

  • Market cap at $610.84M, most recent closing price at $5.29.
  • Revenue grew by -6.11% during the most recent quarter ($65.88M vs. $70.17M y/y). Accounts receivable grew by 26.93% during the same time period ($46.95M vs. $36.99M y/y). Receivables, as a percentage of current assets, increased from 12.3% to 16.34% during the most recent quarter (comparing 13 weeks ending 2012-12-29 to 13 weeks ending 2011-12-31).
  • Inventory grew by 18.54% during the same time period ($44.19M vs. $37.28M y/y). Inventory, as a percentage of current assets, increased from 12.4% to 15.38% during the most recent quarter (comparing 13 weeks ending 2012-12-29 to 13 weeks ending 2011-12-31).
  • Debt-to-equity at 0.

4. National Instruments Corporation (NASDAQ:NATI): Manufactures and supplies measurement and automation products.

  • Market cap at $3.95B, most recent closing price at $31.97.
  • Revenue grew by 8.01% during the most recent quarter ($300.33M vs. $278.05M y/y). Accounts receivable grew by 19.1% during the same time period ($187.06M vs. $157.06M y/y). Receivables, as a percentage of current assets, increased from 21.83% to 24.37% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • Inventory grew by 28.78% during the same time period ($169.99M vs. $132M y/y). Inventory, as a percentage of current assets, increased from 18.34% to 22.14% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31)
  • Debt-to-equity at 0.

5. Skyworks Solutions Inc. (NASDAQ:SWKS): Offers analog and mixed signal semiconductors worldwide.

  • Market cap at $4.05B, most recent closing price at $21.20.
  • Revenue grew by 15.23% during the most recent quarter ($453.72M vs. $393.74M y/y). Accounts receivable grew by 26.7% during the same time period ($252.15M vs. $199.01M y/y). Receivables, as a percentage of current assets, increased from 23.24% to 28.03% during the most recent quarter (comparing 13 weeks ending 2012-12-28 to 13 weeks ending 2011-12-30).
  • Inventory grew by 29.3% during the same time period ($229.53M vs. $177.52M y/y). Inventory, as a percentage of current assets, increased from 20.73% to 25.52% during the most recent quarter (comparing 13 weeks ending 2012-12-28 to 13 weeks ending 2011-12-30).
  • Debt-to-equity at 0.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 5 Low-Debt Small And Mid Cap Tech Stocks With Troubling Accounting Trends