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Tech stocks can offer investors huge growth opportunities, although this comes with its fair share of added risk. One tactic to minimize that risk is to screen for tech companies that have a healthy amount of profitability. Today we focused on technology companies with strong earnings, while focusing in on those that also look undervalued according to their fundamentals. We came up with a short but interesting list.

The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint.

Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share

The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.

Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.

The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue

We first looked for technology stocks. From here, we then looked for companies that are trading at low price-multiple valuations (P/CFO<10)(forward P/E<10). We then screened for businesses that have strong profitability relative to their asset base (ROA [TTM]>10%)(Net Margin [TTM]>10%). We did not screen out any market caps.

Do you think these stocks are undervalued and have room to trade higher? Use this list as a starting-off point for your own analysis.

1) QLogic Corp. (QLGC)

Sector:Technology
Industry:Semiconductor - Integrated Circuits
Market Cap:$1.31B
Beta:1.34

QLogic Corp. has a Price/Cash Flow Ratio of 2.44, a Forward Price/Earnings Ratio of 8.91, a Return on Assets of 14.30%, and a Net Margin of 21.38%. The short interest was 6.44% as of 07/08/2012. QLogic Corporation designs and supplies network infrastructure products that provide, enhance, and manage computer data communication. It designs and develops application-specific integrated circuits, adapters, and switches based on fiber channel, Internet small computer systems interface (iSCSI), Fiber Channel over Ethernet (FCOE), and Ethernet technologies. The company offers host products, including fiber channel adapters; iSCSI adapters; FCOE converged network adapters; and 10Gb Ethernet adapters. It also provides network products, such as blade, edge, and high-port count modular-chassis fiber channel switches; fiber channel virtualized pass-through modules; universal access point switches; enhanced Ethernet pass-through modules; and storage routers.

2) City Telecom HK Ltd. (CTEL)

Sector:Technology
Industry:Telecom Services - Foreign
Market Cap:$395.20M
Beta:1.64

City Telecom HK Ltd. has a Price/Cash Flow Ratio of 12.35, a Forward Price/Earnings Ratio of 7.03, a Return on Assets of 12.37%, and a Net Margin of 15.84%. The short interest was 0.24% as of 07/08/2012. City Telecom (H.K.) Limited, together with its subsidiaries, engages in the provision of international and fixed telecommunications services to residential and corporate customers in Hong Kong and Canada. The company's international telecommunications services include international direct dialing, international calling cards, international call forwarding, and fax to email services.

3) Silicon Motion Technology Corp. (SIMO)

Sector:Technology
Industry:Diversified Electronics
Market Cap:$458.64M
Beta:2.04

Silicon Motion Technology Corp. has a Price/Cash Flow Ratio of 4.94, a Forward Price/Earnings Ratio of 6.98, a Return on Assets of 18.52%, and a Net Margin of 18.50%. The short interest was 7.87% as of 07/08/2012. Silicon Motion Technology Corporation, a fabless semiconductor company, designs, develops, and supplies a portfolio of multimedia data processing, storage, and transfer solutions primarily for consumer electronics applications. The company offers a range of microcontrollers for use in NAND flash memory storage products, including flash memory cards, USB flash drives, and embedded flash and solid state drives. It also offers a range of multimedia SoCs comprising embedded graphics processors for embedded graphics applications in desktop and notebook personal computers, game consoles, work stations, and multimedia mobile phones. In addition, the company provides semiconductor solutions consisting of mobile television tuners and integrated tuner plus demodulator SoCs for mobile phones and other portable devices; and CDMA transceivers for CDMA 1x and EVDO modem solutions, as well as transceivers for LTE modem solutions.

*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.

Source: 3 Undervalued Tech Small Caps With Impressive Earnings