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There are high growth opportunities present in the small cap technology sector, but the stakes can be higher. A tactic for minimizing risk is to focus on small cap stocks that are demonstrating solid profitability. We ran a screen for companies of this nature in the tech space. From there we further distilled our list to only include those that had been rated as 'Buy' or 'Strong Buy' by industry analysts. We think you will be intrigued by our findings.

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 Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.

We first looked for small cap technology stocks. We then looked for companies that have strong profitability relative to their asset base (ROA [TTM]>10%)(1-year operating margin>15%). We next screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3).

Do you think these small-cap stocks are undervalued and have room to trade higher? Please use our list to assist with your own analysis.

1) NIC Inc. (EGOV)

Sector:Technology
Industry:Application Software
Market Cap:$872.79M
Beta:0.97

NIC Inc. has a Return on Assets of 19.29%, a Operating Profit Margin of 21.27%, and a Analysts' Rating of 1.00. The short interest was 4.65% as of 08/03/2012. 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.

2) Computer Programs & Systems Inc. (CPSI)

Sector:Technology
Industry:Healthcare Information Services
Market Cap:$541.50M
Beta:0.41

Computer Programs & Systems Inc. has a Return on Assets of 34.81%, a Operating Profit Margin of 23.54%, and a Analysts' Rating of 2.00. The short interest was 8.12% as of 08/03/2012. Computer Programs and Systems, Inc., a healthcare information technology company, designs, develops, markets, installs, and supports computerized information technology systems to small and midsize hospitals in the United States. Its enterprise-wide system automates the management of clinical and financial data across the primary functional areas of a hospital. The company offers services that enable customers to outsource certain data-related business processes in the areas of clinical care, revenue cycle management, cost control, and regulatory compliance.

3) 8x8 Inc. (EGHT)

Sector:Technology
Industry:Communication Equipment
Market Cap:$389.57M
Beta:1.26

8x8 Inc. has a Return on Assets of 89.35%, a Operating Profit Margin of 21.57%, and a Analysts' Rating of 1.70. The short interest was 12.64% as of 08/03/2012. 8x8, Inc. develops and markets telecommunications services for Internet protocol (IP), telephony, and video applications. It also offers contact center, Web-based conferencing, and unified communications services, as well as cloud-based computing services. The company provides the 8x8 Virtual Office, a hosted private branch exchange service targeting the small and medium-sized business market; the 8x8 Virtual Contact Center service, an integrated hosted call center solution that works with various broadband Internet connections and offers enterprise class contact center functionality combined with Virtual Office calling features; the 8x8 Virtual Office Pro unified communications solution that allows subscribers to manage business communications functions online through a centralized Web-based portal through a PC, laptop, tablet, or smart phone; and the 8x8 managed hosting and cloud-based computing solutions for business customers.

4) InvenSense, Inc. (INVN)

Sector:Technology
Industry:Semiconductor Equipment & Materials
Market Cap:$1.03B
Beta:-

InvenSense, Inc. has a Return on Assets of 27.98%, a Operating Profit Margin of 30.74%, and a Analysts' Rating of 2.00. The short interest was 14.11% as of 08/03/2012. InvenSense, Inc. designs, develops, markets, and sells micro-electro-mechanical systems (MEMS) gyroscopes for motion tracking devices in consumer electronics. The company delivers motion interface solutions based on its multi-axis gyroscope technology by targeting applications in video gaming devices, smartphones, tablet devices, digital still and video cameras, smart TVs, 3D mice, wearable health and fitness monitors, optical image stabilization products, and portable navigation devices. It offers MotionProcessor units (MPUs), inertial measurement units (IMUs), and MEMS gyroscopes.

5) Raven Industries Inc. (RAVN)

Sector:Technology
Industry:Printed Circuit Boards
Market Cap:$599.89M
Beta:1.23

Raven Industries Inc. has a Return on Assets of 22.96%, a Operating Profit Margin of 20.24%, and a Analysts' Rating of 1.00. The short interest was 3.72% as of 08/03/2012. Raven Industries, Inc., together with its subsidiaries, manufactures various products for industrial, agricultural, energy, construction, and military/aerospace markets primarily in North America. It operates in four segments: Applied Technology, Engineered Films, Aerostar, and Electronic Systems. The Applied Technology segment designs, manufactures, sells, and services precision agriculture products and information management tools enabling growers to enhance farm yields.

6) Changyou.com Limited (CYOU)

Sector:Technology
Industry:Multimedia & Graphics Software
Market Cap:$987.85M
Beta:-

Changyou.com Limited has a Return on Assets of 36.06%, a Operating Profit Margin of 56.76%, and a Analysts' Rating of 2.30. The short interest was 3.35% as of 08/03/2012. Changyou.com Limited develops and operates online games in the People's Republic of China. The company is primarily involved in the development, operation, and licensing of massively multi-player online games (MMOGs), which are interactive online games that might be played simultaneously by various game players, and Web-based games, which are played over the Internet using a Web browser. It also owns and operates the 17173.

7) Travelzoo Inc. (TZOO)

Sector:Technology
Industry:Internet Information Providers
Market Cap:$340.27M
Beta:1.88

Travelzoo Inc. has a Return on Assets of 29.94%, a Operating Profit Margin of 22.51%, and a Analysts' Rating of 2.50. The short interest was 39.45% as of 08/03/2012. Travelzoo Inc., an Internet media company, together with its subsidiaries, publishes travel and entertainment deals from travel and entertainment companies, and local businesses in North America and Europe. Its publications and products include the Travelzoo Websites, such as travelzoo.com, travelzoo.

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

Source: 7 Analyst-Backed Small Cap Tech Stocks With Strong Profitability