Technology stocks pose an interesting dilemma. On the one hand, investors have realized large gains when they have aligned themselves with companies that have grown dramatically. But from another angle, many people have had sour experiences where companies have not lived up to expectations. Considering that most investors consider tech stocks to carry higher risk, we scanned for companies that have kept the debt to a minimum. These companies have kept their capital structure intact by not borrowing heavily against assets. Our list was further reduced to include stocks that appear to be trading below their true value. Today's list of undervalued and low-debt tech stocks is short, but we think you will find it worthy of a deeper analysis.
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 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 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 technology stocks. We then looked for companies with a low price-multiple premium (forward P/E<10)(P/CFO<10). We next screened for businesses that have maintained a sound long term capital structure (Long Term D/E Ratio<.1). We then screened for businesses that operate with little to no debt (D/E Ratio<.1). We did not screen out any market caps.
Do you think these stocks will outperform? Please use our list to assist with your own analysis.
1) Sykes Enterprises, Incorporated (SYKE)
|Industry||Information Technology Services|
|Forward Price/Earnings Ratio||9.96|
|Price/Cash Flow Ratio||2.90|
|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|
|Forward Price/Earnings Ratio||8.23|
|Price/Cash Flow Ratio||2.75|
|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) Kongzhong Corp. (KONG)
|Industry||Multimedia & Graphics Software|
|Forward Price/Earnings Ratio||8.81|
|Price/Cash Flow Ratio||1.57|
|Long Term Debt/Equity Ratio||0.00|
KongZhong Corporation, through its subsidiaries, engages in the provision of digital entertainment services primarily in the People's Republic of China and the Asia Pacific. It offers wireless value-added services (WVAS), including mobile games, pictures, karaoke, electronic books, mobile phone personalization features, entertainment news, chat, and message boards through various second generation standard technology platforms, including SMS, IVR, and CRBT; and various second and a half generation standard technology and operating platforms comprising WAP and MMS. The company also delivers and markets its WVAS through various media partners, such as handset manufacturers, television stations, radio stations, print media, and Internet sites.
In addition, it operates a range of mobile Internet sites consisting of Kong.net, an integrated mobile portal; ct.cn, a mobile Chinese literature site; and ko.cn, a mobile games community site. Further, the company develops and publishes mobile games, which include action, role-playing, and leisure games for mobile phone users. Additionally, it develops and operates various Internet games, such as 3D MMORPGs, Loong, EMoFaZe, XiaKeXing, and ShengMoZhiXue, as well as licensed World of Tanks game. The company was formerly known as Communication Over The Air Inc. and changed its name to KongZhong Corporation in March 2004. KongZhong Corporation was founded in 2002 and is headquartered in Beijing, the People's Republic of China.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/06/2012.