7 Tech Stocks Growing Everything But Price

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 |  Includes: APKT, CTCT, CTSH, FFIV, MXWL, NTAP, RVBD, SFSF
by: Alan Brochstein, CFA

This week's announcement of the pending acquisition by SAP (NYSE:SAP) of SuccessFactors (NYSE:SFSF) is a powerful reminder that good things can happen to unique, rapidly growing technology companies that don't necessarily trade on near-term valuation metrics or at least aren't "bargains". For those not familiar, the company, which provides cloud-based software to help companies with their human resources by allowing them to measure employee performance, grew sales by about 35% in each of the past two years and is on track to grow sales by more than 60% (thanks in part to a mid-year acquisition). It isn't particularly profitable yet.

After reaching an all-time high in April, SFSF lost over 1/2 its value over the next few months. It wasn't too far from those lows when it received its cash bid near the previous all-time high last week, rewarding patient investors but no doubt frustrating those who gave up on the way down.

SFSF isn't the only high-growth tech stock to get pounded this year in a market that has gotten a lot more cautious than it was last Spring. With this in mind, I wanted to run a screen to see if I might identify any other high-fliers that are still performing in all ways except the stock price. Here is what I did:

  • Market Cap > $200mm
  • Trading Near Decade Highs Earlier This Year
  • Sales Growth (ttm) > 15%
  • EPS Growth (ttm) > 20%
  • YTD Return < 0
  • 5-Year Sales Growth > 15%
  • 2012 Projected EPS Growth > 10%
  • 2012 Projected Sales Growth > 10%

Here are the 7 companies that made the cut (click to enlarge image):

Click to enlarge

These companies include some smaller ones as well as the reasonably large NetApp (NASDAQ:NTAP) and Cognizant (NASDAQ:CTSH). I am familiar with most of these except Maxwell Technologies (NASDAQ:MXWL), which has traded publicly since 1983 and is focused on energy storage and power delivery devices.

While acquisition isn't the only potential "success factor" here, several of these names have been mentioned as possible buy-out candidates in the past. With the exception of CTSH, I wouldn't rule any out.

Unlike SFSF, all of these stocks trade on a double-digit PE, most in the 20s. I included in the last column the earnings estimate revision for next year - only MXWL has seen a material reduction in its outlook. Instead, the stocks are pricing in fears of reduced growth apparently, running ahead of the analysts.

When I look at this list, one that jumps out at me is Constant Contact (NASDAQ:CTCT), which helps businesses with email and internet marketing. The sales growth has definitely slowed, but its still very respectable at 20%, with much higher potential earnings growth. I like CEO Gail Goodman's deep software and consulting background and believe her alignment with shareholders is excellent. Insiders altogether own over 7% of the company. The 28PE may seem steep, but the company has over $3 per share in cash net of debt and deferred revenue. With highly recurring revenue, 485K unique customers, new products and a domestic focus (they just made their first international excursion to the UK), this one seems like a good stock for these uncertain times.

I have followed NTAP most closely on this list, and it stands out for its cheapness. It has done a great job over the years, but it seems like it may be running into EMC now on the high end. It's projected sales growth next year is the lowest on the list. While I think the valuation is very reasonable, I am more interested in looking further into Acme Packet (NASDAQ:APKT), which has seen very heavy insider selling this year, or perhaps Riverbed (NASDAQ:RVBD).

In any event, as someone who is pretty optimistic about stocks for the coming year, I am shifting some of my focus more towards growth stocks. While I typically like better absolute valuations, most of these look very reasonable.

If you are familiar with these companies, do you feel as though the market is a bit too pessimistic?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.