Most investors do not want to align themselves with companies that have considerable debt. Especially if that company is at the small cap level. These companies already have a bit of an uphill battle to attract investors because of the perception that both tech and small cap companies carry more risk. Keeping debt to a minimum demonstrates that a company has a sound infrastructure and has not relied upon leveraging its assets to grow the business. Today we ran a scan to find small cap tech stocks with little debt. In addition, they all appear to be trading at a discount. Review the summaries and graphs below to make your own assessment about these small cap tech stocks.
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.
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 to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to 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 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.
We first looked for small cap technology stocks. We next screened for businesses that are trading at low price-multiple valuations (P/CFO<10)(forward P/E<10). We then screened for businesses that have maintained a sound long term capital structure (Long Term D/E Ratio<.1). We next screened for businesses that have maintained a sound capital structure (D/E Ratio<.1).
Do you think these small-cap stocks should be priced higher? Please use our list to assist with your own analysis.
1) Sykes Enterprises, Incorporated (SYKE)
|Industry||Information Technology Services|
|Price/Cash Flow Ratio||2.91|
|Forward Price/Earnings Ratio||9.98|
|Long Term Debt/Equity Ratio||0.00|
Sykes Enterprises, Incorporated and its subsidiaries provide outsourced customer contact management solutions and services in the business process outsourcing arena primarily in the United States, Canada, Latin America, Australia, the Asia Pacific Rim, Europe, the Middle East, and Africa. The company's services include customer care services comprising handling product information requests, describing product features, activating customer accounts, resolving complaints, cross-selling/up-selling, handling billing inquiries, changing addresses, claims handling, ordering/reservations, prequalification and warranty management, providing health information, and roadside assistance.
Its services also consist of technical support services, including handling inquiries regarding hardware, software, communications services, communications equipment, Internet access technology, and Internet portal usage; and acquisition services, such as inbound up-selling of its client's products and services. The company delivers its customer contact management services through phone, email, Internet, text messaging, and chat. In addition, it provides various enterprise support services that comprise technical staffing and outsourced corporate help desk services.
Further, the company offers fulfillment services consisting of multilingual sales order processing through the Internet and phone, payment processing, inventory control, product delivery, and product returns handling. It serves corporations, medium-sized businesses, and public institutions primarily in the communications, financial services, technology/consumer, transportation and leisure, and healthcare industries. The company was founded in 1977 and is headquartered in Tampa, Florida.
2) Emulex Corporation (ELX)
|Industry||Data Storage Devices|
|Price/Cash Flow Ratio||2.69|
|Forward Price/Earnings Ratio||8.06|
|Long Term Debt/Equity Ratio||0.00|
Emulex Corporation provides network convergence solutions that connect servers, storage, and networks within the data center. The company designs, develops, and supplies host server products, including host bus adapters, converged network adapters, and application specific integrated circuits that enable servers to connect to local area networks, storage area networks, and network attached storage; and embedded storage products comprising switch-on-a-chip products, embedded storage switches, bridges, routers, and input/output controllers, as well as offers custom form factor solutions for original equipment manufacturer (OEM) blade servers.
In addition, it provides contract engineering services. The company sells its products to OEMs original design manufacturers, and end users worldwide, as well as through various distribution channels, such as value added resellers, systems integrators, industrial distributors, direct market resellers, and other resellers. It has strategic partnership with Myricom to provide networking solutions. Emulex Corporation was founded in 1979 and is headquartered in Costa Mesa, California.
3) Nortel Inversora S.A. (NTL)
|Industry||Telecom Services - Foreign|
|Price/Cash Flow Ratio||3.79|
|Forward Price/Earnings Ratio||5.06|
|Long Term Debt/Equity Ratio||0.02|
Nortel Inversora S.A., through its subsidiary, Telecom Argentina S.A., provides fixed and mobile telecommunication services primarily in Argentina and Paraguay. The company's fixed services comprise local area, national long-distance and international communications; supplementary services, including call waiting, itemized invoicing, and voicemails; interconnections with other operators; data transmission consisting of private networks, point-to-point traffic, and radio and TV signal transmission; outsourcing of information technology solutions; broadband and mobile Internet services; and sale of equipment. Its mobile services include voice communications; GSM and 3G mobile communications over UMTS/HSDPA/HSDPA+ networks comprising high-speed mobile Internet content and applications download, multimedia messaging, online streaming, corporate e-mail, social network access, and contacts save services; and sale of mobile communication devices, such as handsets, 3G modems, and tablets. Nortel Inversora S.A. was founded in 1990 and is based in Buenos Aires, Argentina.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/04/2012.