CSP Is A Tech Stock You Should Be Adding To Your Portfolio

| About: CSP Inc. (CSPI)

Technology stocks represent a great opportunity for investors looking for strong returns. And when they pay dividends, you get an extra source of capital that you can reinvest to grow your portfolio holdings. CSP (NASDAQ: CSPI) Inc. is a business software and services company that provides software and hardware based solutions to clients in the commercial, industrial and even defense industries. Apart from consistently reporting revenue growth, CSP also recently instituted dividends to be paid out quarterly. These two factors alone make it a good addition to your portfolio. But CSPI's solid fundamentals should seal the deal and push you to buy the stock.

CSPI Positive Financial Results

CSP Inc. provides cluster computer systems and IT integration solutions to clients in the commercial, industrial and defense fields. The company consists of two segments: Systems composed primarily of the MultiComputer Division, which creates computer signal processing systems for the commercial and defense markets, and Service and System Integration, which is made of the fully owned Modcomp subsidiary, which includes computer integration and maintenance services as well as its third-party reseller business of computer hardware and software. Modcomp has operations in the US, the UK and Germany.

In its Q2 2013 earnings report, CSPI reported strong financial results with revenues growing by 36% to $25.8 million for the second quarter alone and $46.7 million for the first half of the year, a 16% increase. Net income similarly increased to $740,000 for the second quarter alone and $855,000 for the first six months of 2013. This brought earnings per diluted share to $0.13 in the second quarter and $0.26 in the first half of the year. Both segments reported strong financial results, with the Systems segment benefiting from strong sales to the company's overseas customers and Service and Systems Integration seeing a 39% increase in revenues on a year-to-year basis due to stronger sales from Modcomp's US subsidiary as well as solid growth in the Germany unit.

Meanwhile, the company also showed strength in other key indicators. Its gross margin declined slightly to 22% in the second quarter from the 25% recorded in the same quarter last year. Gross margin for the first quarter was reported at 23 percent. Cash and short-term investments were also lower during the reporting period at $15 million from the $20.5 million recorded at the end of FY 2012, but this was due to an increase in accounts receivables.

Earlier, the company had decided to institute a quarterly dividend payout of $0.03 per share in the second quarter of FY 2013 as a way of building shareholder value due to the continuing strength of the business. For FY 2012, revenue grew by 15% to $84.8 million, while the gross margin increased to 25% in the fourth quarter of 2012. Net income similarly increased to $6.6 million in FY 2012 from $369,000 in the previous fiscal year and to $4.9 million in the fourth quarter of 2012 after recording a net loss of $92,000 in the same quarter last year. Following the release of strong second quarter results, the board of directors voted to increase the dividend payout to $0.10 per share starting with from third quarter of the current fiscal year, and which would be paid out to shareholders in June.

Following the release of the second quarter earnings report, CSI's closing share prices grew by 12% from $7.45 on May 8 to $8.37 the following trading day. At present, the stock is trading at $8.50, a more than 100% increase from the $4.20 the stock closed at a year ago.

Although the company declined to give guidance for the remainder of fiscal year 2013, company officials did give details of some ongoing projects that would continue to support its earnings growth. For example, Broward College in Broward County, Florida, chose Modcomp to upgrade its outdated network infrastructure with a high-performance Enterasys Network Solution that would allow the college's modest number of staff to manage the learning environment of students across its 11 campuses from a centralized Data Center. The project includes not only installation of the computer system but also training of the staff as well as ongoing technical support.

The Bottom Line

A tech stock does not have to be in a glamorous, high-profile business such as selling iPhones or creating video content to be profitable for its investors. There are many low-key stocks such as CSPI issued by companies that are providing basic services and products to their clients that would still be reliably profitable year in and year out without having to experience extreme volatility the way other tech stocks do. In fact, CSPI has a very low beta of 0.03, meaning that it would not reflect the volatility of the markets in its share prices. And the steady growth of share prices makes the stock ideal for those who are using their portfolios to save for their retirements.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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