5 Undervalued Tech Stocks With Strong Profitability

by: Kapitall

Do you consider yourself a value investor, always looking for potentially undervalued stocks? For a closer look at stocks that may be trading below their fair value, we ran a screen.

We began by screening the tech sector for stocks that appear to be undervalued relative to earnings growth, with PEG below 1.

We then screened for those with strong profitability compared to industry peers, with higher gross, operating, and pretax margins than their industry averages by at least 5% on each margin. This indicates that these companies are taking a greater percentage of their revenues as profits, and they also have stronger control over their cost structures.

Do you think these stocks are being undervalued by the market? Use this list as a starting point for your own analysis.

List sorted by difference between pretax margin and industry average.

1. China Digital TV Holding Co., Ltd. (NYSE:STV): Provides conditional access systems to digital television markets in the People's Republic of China. Market cap at $186.44M, most recent closing price at $3.16. PEG at 0.57. TTM gross margin at 79.54% vs. industry average at 44.46%. TTM operating margin at 44.49% vs. industry average at 28.29%. TTM pretax margin at 49.76% vs. industry average at 27.96%.

2. SouFun Holdings Ltd. (NYSE:SFUN): Provides marketing, listing, technology, and information consultancy services to real estate and home furnishing industries in the People's Republic of China. Market cap at $263.28M, most recent closing price at $14.17. PEG at 0.55. TTM gross margin at 80.67% vs. industry average at 71.36%. TTM operating margin at 40.64% vs. industry average at 21.05%. TTM pretax margin at 42.27% vs. industry average at 22.68%.

3. CEVA Inc. (NASDAQ:CEVA): Engages in designing and licensing silicon intellectual property for the handsets, portable multimedia, and consumer electronics markets. Market cap at $361.92M, most recent closing price at $15.60. PEG at 0.73. TTM gross margin at 94.86% vs. industry average at 60.31%. TTM operating margin at 30.32% vs. industry average at 22.39%. TTM pretax margin at 35.81% vs. industry average at 20.66%.

4. OYO Geospace Corp. (OYOG): Engages in designing and manufacturing instruments and equipments used in the acquisition and processing of seismic data; and in the characterization and monitoring of producing oil and gas reservoirs. Market cap at $629.55M, most recent closing price at $98.83. PEG at 0.52. TTM gross margin at 47.15% vs. industry average at 34.37%. TTM operating margin at 27.22% vs. industry average at 18.73%. TTM pretax margin at 27.67% vs. industry average at 14.17%.

5. Zygo Corporation (NASDAQ:ZIGO): Designs, develops, and manufactures ultra-high precision measurement solutions to enhance its customers' manufacturing yields; and optical sub-systems and components for original equipment manufacturers and end-user applications in the United States and internationally. Market cap at $314.31M, most recent closing price at $17.27. PEG at 0.74. TTM gross margin at 52.16% vs. industry average at 36.45%. TTM operating margin at 17.9% vs. industry average at 9.31%. TTM pretax margin at 17.18% vs. industry average at 10.04%.

*Profitability data sourced from Google Finance, 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.