A healthy amount of paranoia can be of service when scrutinizing opportunities. It helps us ask discerning questions and rule out scenarios that present risks beyond our comfort zone. This can be a particularly useful trait when considering investments in the tech arena because additional precautions are often necessary. With this in mind, we focused specifically on tech stocks in the mid-cap range. Companies of this size are familiar with cycling through the highs and lows that accompany the growth process. For our list today, we narrowed our search to companies that have demonstrated profitability and have built up sizable cash reserves. Take a look at our list of profitable mid-cap tech stocks with money in the bank to see if any spark your interest.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
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.
We first looked for mid-cap technology stocks. We then screened for businesses that have a substantial amount of cash on hand (Current Ratio>2) (Quick Ratio>2). We next screened for businesses that have strong bottom line profitability (Net Margin [TTM]>10%) (ROA [TTM]>10%).
Do you think these mid-cap stocks will trade at a higher valuation? Use our screened list as a starting point for your own analysis.
1) Amphenol Corporation (APH)
|Return on Assets||11.30%|
Amphenol Corporation designs, manufactures, and markets electrical, electronic, and fiber optic connectors; interconnect systems; and coaxial and specialty cables worldwide. Its Interconnect Products and Assemblies segment produces interconnect products and assemblies for voice, video, and data communication systems; information technology; commercial aerospace and military systems; automotive and mass transportation applications; and industrial and factory automation equipment. Amphenol Corporation was founded in 1932 and its headquarters is in Wallingford, Connecticut.
2) Bally Technologies, Inc. (BYI)
|Return on Assets||11.69%|
Bally Technologies, Inc., a gaming company, engages in the design, manufacture, operation, and distribution of technology-based gaming devices, systems, server-based solutions, custom mobile applications, and interactive applications. Its Gaming Equipment segment engages in the sale of gaming devices and licensing rights to game content software installed in the gaming devices, parts, and other ancillary equipment; and game content conversion kits, which enable customers to replace game content without purchasing a new gaming device. Bally Technologies, Inc. was founded in 1932 and its headquarters is in Las Vegas, Nevada.
3) MICROS Systems, Inc. (MCRS)
|Return on Assets||11.43%|
MICROS Systems, Inc. designs, manufactures, markets, and services enterprise information solutions for the hospitality and specialty retail industries. The company's enterprise solutions comprise hotel information systems, restaurant information systems, and specialty retail information systems. TThe company was formerly known as Picos Manufacturing, Inc. and changed its name to MICROS Systems, Inc. in 1978. MICROS Systems, Inc. was founded in 1977 and its headquarters is in Columbia, Maryland.
4) Avago Technologies Limited (AVGO)
|Industry||Semiconductor - Broad Line|
|Return on Assets||22.37%|
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. Avago Technologies Limited was founded in 2005 and is based in Singapore.
Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 11/02/2012.