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One important consideration for tech stocks is how easily the company can pay their ongoing capital expenditures. Operating cash flow is a likely source for this payment, so the ratio of operating cash flow to capital expenditures can give an idea of whether the firm’s fixed asset expenses are reasonably covered, leaving cash to spare.

We ran a screen on stocks from the tech sector with high ratios of trailing-twelve-month operating cash flow/capital expenditures. We then screened these stocks for those with strong sources of ROE profitability, indicated by DuPont analysis.

ROE can be broken up into three components such that increases in ROE can be attributed to those components.

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Analyzing the sources of returns for a company, we can focus on companies with the following characteristics: Increasing ROE along with,

  • Decreasing leverage, i.e. decreasing Asset/Equity ratio
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks have strong operations? Use this list as a starting-off point for your own analysis.

List sorted by increase in ROE.

1. Ancestry.com Inc. (NASDAQ:ACOM): Operates as an online resource for family history for subscribers worldwide. Market cap of $1.05B. TTM operating cash flow/capital expenditures at 8.46. MRQ Net Profit Margin increased to 16.35% from 11.44% year-over-year, Sales/Assets increased to 0.19 from 0.14, while Assets/Equity decreased to 1.52 from 1.71. The stock has lost 5.85% over the last year.

2. KLA-Tencor Corporation (NASDAQ:KLAC): Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Market cap of $7.21B. TTM operating cash flow/capital expenditures at 16.09. MRQ Net Profit Margin increased to 27.46% from 20.21% year-over-year, Sales/Assets increased to 0.19 from 0.14, while Assets/Equity decreased to 1.63 from 1.74. The stock has had a good month, gaining 16.77%.

3. Monotype Imaging Holdings Inc. (NASDAQ:TYPE): Provides text imaging solutions worldwide. Market cap of $474.15M. TTM operating cash flow/capital expenditures at 15.86. MRQ Net Profit Margin increased to 18.02% from 12.44% year-over-year, Sales/Assets increased to 0.11 from 0.09, while Assets/Equity decreased to 1.58 from 1.85. The stock has had a good month, gaining 12%.

4. CACI International Inc. (NYSE:CACI): Provides information technology (NYSE:IT) and professional services to the U. Market cap of $1.61B. TTM operating cash flow/capital expenditures at 15.71. MRQ Net Profit Margin increased to 4.77% from 3.52% year-over-year, Sales/Assets increased to 0.42 from 0.38, while Assets/Equity decreased to 1.78 from 1.92. Might be undervalued at current levels, with a PEG ratio at 0.86, and P/FCF ratio at 7.61. The stock is a short squeeze candidate, with a short float at 15.08% (equivalent to 6.04 days of average volume). The stock has had a good month, gaining 12.82%.

5. FEI Co. (NASDAQ:FEIC): Supplies instruments for nanoscale imaging, analysis, and prototyping that enable research, development, and manufacturing in industrial, academic, and research institutional applications. Market cap of $1.36B. TTM operating cash flow/capital expenditures at 6.63. MRQ Net Profit Margin increased to 12.34% from 11.08% year-over-year, Sales/Assets increased to 0.19 from 0.16, while Assets/Equity decreased to 1.53 from 1.56. The stock is a short squeeze candidate, with a short float at 7.53% (equivalent to 5.92 days of average volume). The stock has had a couple of great days, gaining 6.81% over the last week.

6. Acuity Brands, Inc. (NYSE:AYI): Engages in the design, production, and distribution of lighting fixtures, lighting controls, and related products and services in North America and internationally. Market cap of $1.91B. TTM operating cash flow/capital expenditures at 6.90. MRQ Net Profit Margin increased to 6.89% from 6.12% year-over-year, Sales/Assets increased to 0.31 from 0.30, while Assets/Equity decreased to 2.11 from 2.17. The stock is a short squeeze candidate, with a short float at 8.22% (equivalent to 6.57 days of average volume). The stock has had a good month, gaining 20.03%.

7. Ansys, Inc. (NASDAQ:ANSS): Engages in the development and marketing of engineering simulation software and services used by engineers and designers in aerospace, automotive, manufacturing, electronics, biomedical, energy, and defense industries. Market cap of $4.70B. TTM operating cash flow/capital expenditures at 12.08. MRQ Net Profit Margin increased to 28.0% from 25.76% year-over-year, Sales/Assets increased to 0.0725 from 0.0705, while Assets/Equity decreased to 1.36 from 1.39. The stock has gained 12.42% over the last year.

8. Ametek Inc. (NYSE:AME): Manufactures and sells electronic instruments and electromechanical devices in North America, Europe, Asia, and South America. Market cap of $6.21B. TTM operating cash flow/capital expenditures at 9.81. MRQ Net Profit Margin increased to 12.41% from 11.38% year-over-year, Sales/Assets increased to 0.1826 from 0.1812, while Assets/Equity decreased to 2.09 from 2.10. The stock has had a good month, gaining 14.71%.

9. Agilent Technologies Inc. (NYSE:A): Provides bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries in the United States and internationally. Market cap of $12.25B. TTM operating cash flow/capital expenditures at 6.53. MRQ Net Profit Margin increased to 19.52% from 14.81% year-over-year, Sales/Assets increased to 0.19 from 0.15, while Assets/Equity decreased to 2.09 from 3.25. Might be undervalued at current levels, with a PEG ratio at 0.78, and P/FCF ratio at 12.88. The stock has had a couple of great days, gaining 5.79% over the last week.

10. Generac Holdlings Inc. Common S (NYSE:GNRC): Electronic Equipment Industry. Market cap of $1.44B. TTM operating cash flow/capital expenditures at 9.58. MRQ Net Profit Margin increased to 9.48% from 9.13% year-over-year, Sales/Assets increased to 0.13 from 0.11, while Assets/Equity decreased to 2.62 from 3.11. Exhibiting strong upside momentum--currently trading 8.57% above its SMA20, 13.14% above its SMA50, and 17.18% above its SMA200. The stock has had a good month, gaining 35.54%.

11. QUALCOMM Incorporated (NASDAQ:QCOM): Engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. Market cap of $87.38B. TTM operating cash flow/capital expenditures at 8.13. MRQ Net Profit Margin increased to 28.57% from 28.41% year-over-year, Sales/Assets increased to 0.10 from 0.09, while Assets/Equity decreased to 1.34 from 1.48. It's been a rough couple of days for the stock, losing 5.38% over the last week.

*Accounting data sourced from Google Finance, operating cash flow/capital expenditures data sourced from Screener.co, 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.

Source: 11 Tech Stocks With Strong Sources Of Profitability And Coverage Of Expenses