Growing a company is a lot like walking a balance beam. To not fall off, the focus has to be straight ahead while keeping the core tight. For many companies, this means not over borrowing against assets to keep a sound financial structure for the long term. When a company utilizes too much debt to fund growth, it can easily topple over. With this in mind we gathered a short list of tech stocks that have kept debt to a minimum. In addition, all of the companies appear to be trading below their true value. Use the graphs and summaries below to begin your own assessment.
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared with its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it with others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it lets an investor know how much the investment community is willing to pay for every dollar's worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollar's worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community - not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
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
We first looked for technology stocks. From here, we then looked for companies that have maintained a sound capital structure (D/E Ratio<.1). We then looked for companies that have maintained a sound long-term capital structure (Long Term D/E Ratio<.1). We then looked for businesses that are trading at a discount (P/S<1)(P/CFO<10). We did not screen out any market caps.
Do you think these stocks hold value that has yet to be priced in? Use our list along with your own analysis.
1) Ultra Clean Holdings Inc. (NASDAQ:UCTT)
|Industry||Semiconductor - Specialized|
|Long Term Debt/Equity Ratio||0.01|
|Price/Cash Flow Ratio||2.68|
Ultra Clean Holdings, Inc., together with its subsidiaries, engages in the design, development, engineering, manufacture, and sale of critical modules and subsystems primarily to original equipment manufacturers in semiconductor capital equipment, flat panel, medical, energy, and research industries. It offers gas delivery systems that control the flow, pressure, sequencing, and mixing of specialty gases into and out of the reaction chambers of semiconductor manufacturing tools; chemical mechanical planarization modules; chemical delivery modules, which deliver gases and reactive chemicals from a centralized subsystem to the reaction chamber; and top-plate assemblies that form the top portion of the reaction chamber. It sells its products through its direct sales force primarily in North America, Asia, and Europe. Ultra Clean Holding, Inc. was founded in 1991 and its headquarters is in Hayward, California.
2) O2Micro International Ltd. (NASDAQ:OIIM)
|Industry||Semiconductor - Integrated Circuits|
|Long Term Debt/Equity Ratio||0.00|
|Price/Cash Flow Ratio||0.90|
O2Micro International Limited designs, develops, and markets integrated circuits for power management and e-commerce components and systems. The company offers analog and mixed-signal integrated circuit products that manage and provide LCD and LED lighting; provide connections between notebook computers and external plug-in cards; control and monitor battery charging and discharging in portable electronic devices and automobiles; perform DC/DC and AC/DC conversion; and provide select and switch functionality between power sources.
Its products are primarily used in the consumer electronics, computer, industrial, communications, and automotive markets for applications, such as LCD and LED monitors, LCD and LED televisions, notebook computers, tablet computers, low/zero emission vehicles, mobile phones, energy efficient technology relating to batteries, LED lighting, and portable media players. The company sells its products through direct sales force, independent sales representatives, and distributors to OEMs, ODMs, and module makers in China, Europe, Japan, Korea, Singapore, Taiwan, the United Kingdom, and the United States. It also licenses its proprietary intellectual property to third parties. The company was founded in 1995 and is based in George Town, the Cayman Islands.
3) Power-One Inc. (NASDAQ:PWER)
|Long Term Debt/Equity Ratio||0.00|
|Price/Cash Flow Ratio||2.84|
Power-One, Inc. engages in the design, manufacture, sale, and service of power supply products for the renewable energy, servers, storage and networking, telecommunications, industrials, and network power systems industries worldwide. Its products convert, regulate, purify, store, manage, or distribute electrical power for electronic equipment. The company provides RE inverters, which convert solar or wind energy into useable grid connected power for use in residential and commercial, and utility-grade solar panels, as well as wind turbine farms; and alternate current (AC)/direct current (DC) power supplies that convert AC into DC voltage used primarily in networking systems, network servers and storage, and industrial equipment. Power-One, Inc. sells its products through its sales force, manufacturers' representatives, and distributors to original equipment manufacturers; distributors/installers; engineering, procurement, and construction firms; and service providers. The company was founded in 1973 and its headquarters is in Camarillo, California.
Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/30/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.