With technology, there always seems to be a new product or innovation that is the latest and greatest. It can be hard to keep up and stay informed because of the sheer volume. But it is an interesting sector to follow, especially from an investment standpoint. To find tech stocks worthy of deeper analysis, we ran a screen that focused on profitability and potential for growth. When the two are in sync, a company is well positioned to go to the next level. For your review, we developed a short list of tech stocks that have a solid track record of profitability and have an EPS growth rate above 25% in the coming year.
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.
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.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
We first looked for technology stocks. From here, we looked for companies with strong profit margins (1-year operating margin>15%) (ROA>10%). We next screened for businesses that have expected earnings per share growth of more than 25 percent for next year (1-year projected EPS Growth Rate>25%). We did not screen out any market caps.
Do you think these stocks should have higher valuations? Use our list along with your own analysis.
1) ASML Holding NV (ASML)
|Industry||Semiconductor Equipment & Materials|
|Operating Profit Margin||26.24%|
|Return on Assets||16.98%|
|1-Year Projected Earnings Per Share Growth Rate||32.85%|
ASML Holding N.V., through its subsidiaries, engages in the design, manufacture, market, and servicing of semiconductor processing equipment used in the fabrication of integrated circuits.
2) MoSys, Inc. (MOSY)
|Industry||Semiconductor - Integrated Circuits|
|Operating Profit Margin||88.64%|
|Return on Assets||12.77%|
|1-Year Projected Earnings Per Share Growth Rate||63.60%|
MoSys, Inc., a fabless semiconductor company, together with its subsidiaries, focuses on the development and sale of integrated circuits (ICs) and intellectual property for the high-speed networking, communications, storage, and computing markets. It offers Bandwidth Engine, a family of ICs for applications in networking and communications systems. The company also engages in licensing its proprietary 1T-SRAM and SerDes I/O technologies to semiconductor companies and foundries.
3) Sohu.com Inc. (SOHU)
|Industry||Internet Information Providers|
|Operating Profit Margin||22.61%|
|Return on Assets||11.75%|
|1-Year Projected Earnings Per Share Growth Rate||63.35%|
Sohu.com Inc. provides Chinese online media, search, gaming, community, and mobile services in the People's Republic of China. The company's brand advertising business offers advertisements on its portal Websites to companies to enhance their brand awareness online; and search and others business provides customers pay-for-click services, placements in a search directory, and online marketing services. Its online game business engages in the development, operation, and licensing of online games, including multi-player online games and Web-based games; and wireless business offers mobile related services, such as news, weather forecasts, chatting, entertainment information, mobile games, mobile phone ringtones, and logo downloads to mobile phone users.
4) Ubiquiti Networks, Inc. (UBNT)
|Operating Profit Margin||35.44%|
|Return on Assets||59.40%|
|1-Year Projected Earnings Per Share Growth Rate||29.87%|
Ubiquiti Networks, Inc., together with its wholly owned subsidiaries, offers a portfolio of wireless networking products and solutions. Its portfolio of radios provides a flexible platform for network operators and service providers that allow them to customize solutions for their specific network requirements. The company offers standalone radios and integrated radios.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/22/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.