Dipping My Toe Into Small Cap Technology

Includes: CKP, WEB
by: Bret Jensen


The stock is trying to stage a rally at midday Tuesday after three straight days of deep declines.

It is too early to get back in the momentum names, but some small caps are starting to look more attractive after recent pull backs.

Profiled below are two small cap tech stocks that look appealing on a longer term basis given their growth prospects.

The market is trying to stage somewhat of a rally at midday Tuesday after three days of deep declines. Although I believe it is too early to go back to some of the high momentum names that have cratered recently after leading the rally in 2013 like Tesla Motors (NASDAQ:TSLA); some areas that have been taking hits in the decline recently look more attractive.

Small caps have suffered declines as well with the Russell 2000 down some 6% from its highs in March. I have seen some growth plays that are starting to get attractively priced on a longer term basis. This is especially true in small cap technology. Here are two small cap tech plays that look appealing given their growth prospects.

Web.com Group, Inc. (WWWW) provides Internet services to small businesses in North America, South America, and the United Kingdom. The company offers a range of Web services and products that enable small businesses to establish, maintain, promote, and optimize their online presence. The company has a market capitalization just north of $1.5B. The shares trade at ~$31 a share and the shares have declined some 15% over the last month on the NASDAQ and Russell 2000 sell-off.

Craig-Hollum upgraded the shares today from "Hold" to "Buy". The analyst firm has a $40 a share price target on WWWW. This is close in line to the median price target of $39 a share the 11 analysts that cover the company have on the stock. The company is seeing consistent revenue growth of 10% to 12% annually.

This is translating nicely into earnings gains. Web.com earned just over $2 a share in FY2013. The consensus sees earnings of ~$2.50 a share in FY2014 and almost $3 a share in FY2015. The stock is not expensive at under 11x FY2015's expected EPS and the shares have a five year projected PEG of under 1 (.93).

Checkpoint Systems, Inc. (NYSE:CKP) manufactures and provides technology-driven, loss prevention, inventory management and labeling solutions to the retail and apparel industry worldwide. The company operates in three segments: Merchandise Availability Solutions, Apparel Labeling Solutions, and Retail Merchandising Solutions. The company has a market capitalization a bit over $500mm. Checkpoints is priced at just under $13 a share.

This is another small cap tech play that has a five year projected PEG of under 1 (.92) and an impressive earnings trajectory. Checkpoint earned 42 cents a share in FY2013 but analysts project earnings will grow ~80% to over 75 cents a share this fiscal year. The consensus sees almost a buck a share in profits for 2015.

The company has a solid balance sheet with some $30mm in net cash on the books. The shares go for less than 13x FY2015's projected EPS. Only three analysts cover the stock and their price targets are in a tight range of $19 to $20 a share. The stock has been in the "penalty box" for some minor accounting issues that caused it to restate some financials. The shares are down ~10% from their highs in March. Hopefully the company can put that issue in the rear view mirror in the months ahead.

I may be a bit early but these small cap growth plays in Technology seem worth consideration at these levels.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WWWW, CKP over 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.