Interested in technology stocks? Looking for undervalued stocks? Looking for ways to dig deeper into a company's profitability? Here are some interesting ideas to get you started.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
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 let's an investor know how much the investment community is willing to pay for every dollars 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 dollars 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 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 technology stocks. Next, we then screened for businesses that are trading at a discount (P/E<10)(P/S<1). We next screened for businesses that have been able to retain strong profit margins on the bottom line (Net Margin [TTM]>10%)(ROA [TTM]>10%). We did not screen out any market caps.
Do you think these stocks can offer attractive returns? Use our list along with your own analysis.
1) Digital Power Corp. (NYSEMKT:DPW)
Digital Power Corp. has a Price/Earnings Ratio of 7.12 and Price/Sales Ratio of 0.70 and Net Margin of 10.01% and Return on Assets of 15.47%. The short interest was 0.23% as of 05/20/2012. Digital Power Corporation, together with its subsidiary, Digital Power Limited, designs, develops, manufactures, and sells power products and system solutions for various applications medical, military/defense, telecom, and industrial markets in North America, Europe, and internationally. The company offers custom power products, front-end, open-frame, enclosed, CompactPCI, MicroTCA, and power over Ethernet products, which provide power output from 50 to 24,000 watts. Its products comprise power conversion and power distribution equipment, direct current/active current inverters, uninterrupted power supply products, transformer rectifiers, switching power supplies, and power conversion and distribution equipment frequency converters. The company sells its products directly by its sales force, as well as through a partner network of independent manufacturers' representatives and distributors.
2) ClearOne Communications Inc. (NASDAQ:CLRO)
ClearOne Communications Inc. has a Price/Earnings Ratio of 5.34 and Price/Sales Ratio of 0.75 and Net Margin of 14.43% and Return on Assets of 13.86%. The short interest was 0.82% as of 05/20/2012. ClearOne Communications, Inc., a communications solutions company, develops and sells conferencing, collaboration, and streaming multimedia systems for audio, video, and Web applications. It develops, manufactures, markets, and services a line of audio conferencing products for personal, tabletop, premium, and professional uses by businesses and organizations, such as enterprise, healthcare, education and distance learning, government, legal, and finance organizations. The company also offers various residential products under the NetStreams DigilinX brand and commercial products under the VIEW brand, which deliver the Internet protocol (IP) A/V experience by streaming high definition audio and video, and control over TCP/IP networks.
3) Convergys Corporation (NYSE:CVG)
|Industry:||Business Software & Services|
Convergys Corporation has a Price/Earnings Ratio of 5.02 and Price/Sales Ratio of 0.68 and Net Margin of 14.21% and Return on Assets of 14.24%. The short interest was 6.29% as of 05/20/2012. Convergys Corporation provides relationship management solutions in North America and internationally. It operates in two segments, Customer Management and Information Management. The Customer Management segment offers agent-assisted, self-service, and intelligent technology care solutions, including customer service, customer retention, sales, technical support, social interaction, collections management, back office, business-to-business, customer experience applied analytics, and intelligent interaction solutions for communications, financial services, technology, retail, healthcare, and government markets.
4) inTEST Corp. (NYSEMKT:INTT)
|Industry:||Semiconductor - Integrated Circuits|
inTEST Corp. has a Price/Earnings Ratio of 4.11 and Price/Sales Ratio of 0.77 and Net Margin of 18.50% and Return on Assets of 31.10%. The short interest was 0.12% as of 05/20/2012. inTEST Corporation, together with its subsidiaries, engages in the design, manufacture, and marketing of mechanical, thermal, and electrical products. Its products are primarily used by semiconductor manufacturers in conjunction with automatic test equipment in the testing of integrated circuit (IC) or semiconductors, including microprocessors, digital signal processing chips, mixed signal devices, micro-electro-mechanical systems, application specific ICs, and specialized memory ICs, which are used in the automotive, aerospace, computer, consumer products, and telecommunications industries. The company operates in three segments: Mechanical Products, Thermal Products, and Electrical Products. The Mechanical Products segment offers manipulator products, such as in2(NYSE:R), M Series, Aero Series, and Cobal Series that can hold various test heads and enable an operator to reposition a test head for alternate use with any one of various probers or handlers on a test floor.
5) GT Advanced Technologies Inc. (GTAT)
|Industry:||Semiconductor - Specialized|
GT Advanced Technologies Inc. has a Price/Earnings Ratio of 2.93 and Price/Sales Ratio of 0.53 and Net Margin of 19.19% and Return on Assets of 16.24%. The short interest was 17.07% as of 05/20/2012. GT Advanced Technologies Inc. provides polysilicon production technology and multicrystalline ingot growth systems, and related photovoltaic (PV) manufacturing services for the solar industry worldwide. It also offers sapphire growth systems and material for the LED and other specialty markets. The company's principal products comprise chemical vapor deposition reactors and related equipment used to produce polysilicon; directional solidification furnaces and related equipment used to cast multicrystalline silicon ingots, which are used to make PV wafers; advanced sapphire furnaces used to crystallize sapphire boules that are used to make sapphire wafers; and sapphire material primarily used to make various products, such as epitaxial-ready wafers.
6) Spansion Inc. (CODE)
|Industry:||Semiconductor- Memory Chips|
Spansion Inc. has a Price/Earnings Ratio of 2.51 and Price/Sales Ratio of 0.55 and Net Margin of 21.04% and Return on Assets of 15.46%. The short interest was 4.73% as of 05/20/2012. Spansion Inc. engages in the design, development, manufacture, and sale of flash memory semiconductors worldwide. It offers flash memory solutions for microprocessors, controllers, and other programmable semiconductors that run applications in a range of electronic systems, including automotive and industrial, computing and communications, and consumer and gaming. The company's product designs are primarily based on its proprietary two-bit-per-cell MirrorBit technology.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.