Many investors won't consider an investment in a tech company until it is profitable. The risk is usually too great, regardless of the growth projections. But when a tech company has a track record of generating strong earnings, then it is understandable that more people will be intrigued. With this in mind, we focused on tech companies that have their finances in order by producing substantial profits and keeping debt to a minimum. Even for profitable companies, when they have borrowed heavily against assets it raises concerns about long term financial health. Look below for our list of profitable, low-debt tech stocks to see if any capture your interest.
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.
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 technology stocks. We next screened for businesses that have maintained a sound capital structure (D/E Ratio<.1). From here, we then looked for companies with strong profitability (ROA > 10%)(1-year operating margin>15%). We did not screen out any market caps.
Do you think these stocks offer both value and growth? Use our screened list as a starting point for your own analysis.
1) AutoNavi Holdings Limited (AMAP)
|Return on Assets||12.08%|
|Operating Profit Margin||25.91%|
AutoNavi Holdings Limited provides digital map content, and navigation and location-based solutions in the People's Republic of China. It offers digital map data to in-dash navigation system manufacturers and automobile manufacturers; and aftermarket software navigation solutions to dealer-option navigation systems and portable navigation device manufacturers, which include map data, navigation engine, and user interface. The company also provides mobile and Internet location-based media and e-commerce solutions comprising pre-installed and downloadable navigation applications for consumers; mobile map and/or navigation solutions to support location-based services offered by mobile operators; pre-installed and downloadable free mobile applications; Internet and mobile map API solutions; mobile internet solutions for public sectors and enterprises; and vehicle connectivity solutions. In addition, it offers public sector and enterprise applications, such as aerial photogrammetry, 3-D modeling applications, and map data licensing. The company has its headquarters in Beijing, the People's Republic of China.
2) Avago Technologies Limited (AVGO)
|Industry||Semiconductor - Broad Line|
|Return on Assets||22.37%|
|Operating Profit Margin||24.36%|
Avago Technologies Limited engages in the design, development, and supply of analog semiconductor devices with a focus on III-V based products. Its product portfolio comprises RF amplifiers, RF filters, RF front-end modules, ambient light sensors, light emitting diodes, low noise amplifiers, mm-wave mixers, optical finger navigation products, diodes, fiber optic transceivers, serializer/deserializer ASICs, motion control encoders and subsystems, optocouplers, and optical mouse sensors.
The company's products are used in cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, renewable energy and smart power grid, factory automation, displays, optical mice, printers, voice and data communications, keypad and display backlighting, backlighting control, base stations, storage area networking, in-car infotainment, lighting, motor controls, power supplies, and optical disk drives applications. It markets its products through a network of distributors and its direct sales force worldwide. The company sells approximately 6,500 products to original equipment manufacturers of wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals markets. Avago Technologies Limited was founded in 2005 and is based in Singapore.
3) ARM Holdings plc (ARMH)
|Industry||Semiconductor - Specialized|
|Return on Assets||11.46%|
|Operating Profit Margin||35.68%|
ARM Holdings plc designs reduced instruction set computing (RISC) microprocessors, physical intellectual property, and related technology and software. Its products and services include 16/32-bit RISC microprocessors cores, data engines, graphics intellectual property, and on-chip fabric intellectual property; embedded software; physical intellectual property; development tools; and consulting, support, and maintenance services. The company licenses and sells its technology and products to electronics companies, which in turn manufacture, market, and sell microprocessors, application-specific integrated circuits, and application-specific standard processors to systems companies for incorporation into various end products. ARM Holdings is establishing RISC processor architecture and physical intellectual property for use in various high-volume embedded microprocessor applications, including digital cellular phones, modems, and automotive functions, as well as in smart cards and digital video. It offers its products and services in Europe, the United States, and the Asia Pacific. The company was founded in 1990 as Advanced RISC Machines Holdings Limited and changed its name to ARM Holdings plc in 1998. ARM Holdings is based in Cambridge, the United Kingdom.
4) Cognex Corporation (CGNX)
|Industry||Scientific & Technical Instruments|
|Return on Assets||11.40%|
|Operating Profit Margin||26.07%|
Cognex Corporation provides machine vision products that capture and analyze visual information to automate tasks primarily in manufacturing processes. It operates in two divisions, Modular Vision Systems and Surface Inspection Systems. The Modular Vision Systems division develops, manufactures, and markets modular vision systems that are used to automate the manufacture of discrete items, such as cellular phones, aspirin bottles, and automobile wheels by locating, identifying, inspecting, and measuring them during the manufacturing process.
The Surface Inspection Systems division develops, manufactures, and markets surface inspection vision systems that are used to inspect the surfaces of materials processed in a continuous fashion, including metals, papers, nonwoven, plastics, and glass. The company serves customers in factory automation, semiconductor and electronics capital equipment, and surface inspection markets. Cognex Corporation sells its products through direct sales force, as well as through a network of integration and distribution partners worldwide. The company was founded in 1981 and its headquarters is in Natick, Massachusetts.
Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/17/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.