With so many tech companies bursting onto the scene, discretion is key to finding the ones with true potential. In the small cap arena, this is particularly important. Looking closely at a companies profit margins is a great place to start. Another tool is following ratings from analysts. We ran a filter to find the tech companies with promise - those with a recent rating of 'Strong Buy' by analysts as well as strong earnings. Today we offer a quick list of companies that meet these criteria.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
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.
We first looked for technology stocks. We then screened for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). We then looked for businesses that have posted strong earnings growth for shareholders over an extended period of time (1-year fiscal EPS growth rate>10%)(ROA [TTM]>10%). We did not screen out any market caps.
Do you think these stocks failed to price their value accurately? Use our list along with your own analysis.
1) Digimarc Corporation (NASDAQ:DMRC)
|Industry:||Information Technology Services|
Digimarc Corporation has an Analysts' Rating of 1.30, an Earnings Per Share Growth Rate of 39.03%, and a Return on Assets of 20.18%. The short interest was 3.83% as of July 28, 2012. Digimarc Corporation provides media identification and management solutions to commercial entities and government customers in the United States and internationally. It develops and patents intellectual property to differentiate products and technology, mitigate infringement risks, and develop opportunities for licensing. The company's patents relate to various methods for embedding and decoding digital information in video, audio, and images, whether the content is rendered in analog or digital formats.
2) NIC Inc. (NASDAQ:EGOV)
NIC Inc. has an Analysts' Rating of 1.00, an Earnings Per Share Growth Rate of 26.11%, and a Return on Assets of 19.29%. The short interest was 4.85% as of July 28, 2012. NIC Inc. provides eGovernment services that enable governments use the Internet to provide various services to businesses and citizens in the United States. It operates in two segments, Outsourced Portals, and Other Software and Services. The Outsourced Portals segment enters into long-term contracts with governments to design, build, and operate Internet-based enterprise-wide portals on their behalf.
3) Silicom Ltd. (NASDAQ:SILC)
|Industry:||Networking & Communication Devices|
Silicom Ltd. has an Analysts' Rating of 1.00, an Earnings Per Share Growth Rate of 43.08%, and a Return on Assets of 11.95%. The short interest was 0.05% as of July 28, 2012. Silicom Ltd. engages in the design, manufacture, marketing, and support of connectivity solutions for a range of servers and server based systems in the North America, Europe, and internationally.
The company primarily offers high-end server networking cards with and without bypass that are known as server adapters. Its server adapters are used in various applications that include security appliances, wide area network optimization appliances, load balancing and traffic management appliances, network-attached storage, video on demand servers, content delivery servers, Internet service providers/Web hosting, and high end computing.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.