3 Profitable Small-Cap Tech Stocks With Analyst Backing

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Includes: CSCO, EGHT, EGOV
by: ZetaKap

Interested in following smaller tech companies? In the case of small-cap tech stocks, you have greater risk, but you also might have the next Facebook (NASDAQ:FB) on your hands. One promising place to look for small-cap tech stocks is to look for companies that actually have strong track records of profitability. Today we focused on profitable tech stocks, and narrowed in on only those that analysts consider a Strong Buy. We came up with a short but worthwhile list for you.

Interested in following smaller companies? Interested in technology stocks? Looking for ways to dig deeper into a company's profitability? Are you after stocks that analysts are calling "buy" or strong "buy"? If yes, here are a few ideas to start your search.

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 Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.

We first looked for small cap technology stocks. We next screened for businesses that have strong bottom line profitability (Net Margin [TTM]>10%)(ROE [TTM]>30%). Next, we then screened for businesses that analysts rate as "Strong Buy" (mean recommendation <= 2).

Do you think these small-cap stocks should have higher valuations? Use our screened list as a starting point for your own analysis.

1) NIC Inc. (NASDAQ:EGOV)

Sector: Technology
Industry: Application Software
Market Cap: $772.88M
Beta: 0.94

NIC Inc. has a Net Margin of 12.58%, a Return on Equity of 35.21%, and a Analysts' Rating of 2.00. The short interest was 5.45% as of 06/20/2012. NIC provides eGovernment services that enable governments to use the Internet to provide various services to businesses and citizens in the United States. It operates in two segments, Outsourced Portals, and Other Software and Services. The Outsourced Portals segment enters into long-term contracts with governments to design, build, and operate Internet-based enterprise-wide portals on their behalf.

2) BroadSoft, Inc. (BSFT)

Sector: Technology
Industry: Application Software
Market Cap: $734.22M
Beta: -

BroadSoft, Inc. has a Net Margin of 20.65%, a Return on Equity of 30.70%, and a Analysts' Rating of 2.00. The short interest was 22.24% as of 06/20/2012. BroadSoft, provides software and services that enable mobile, fixed-line, and cable service providers to deliver unified communications and other voice and multimedia services over Internet protocol (IP) based networks. The company's communications platform consists of BroadWorks software, which enables its service provider customers to provide enterprises and consumers with a range of cloud-based or hosted IP multimedia communications, such as private branch exchanges, video calling, unified communications, collaboration, and converged mobile and fixed-line services; BroadCloud hosted or cloud service that enables its service provider customers to offer Web collaboration, video conferencing, instant messaging, presence, and short messaging to their end-users; and BroadTouch, a client application that enables carriers to offer unified communications services for smartphones, tablets, desktops, and laptops. It also provides a range of professional support services, including pre-sales support; installation, network integration, project management, and remote upgrade services, as well as consulting services; product life-cycle services; and training services.

3) 8x8 Inc. (NASDAQ:EGHT)

Sector: Technology
Industry: Communication Equipment
Market Cap: $306.17M
Beta: 1.29

8x8 Inc. has a Net Margin of 80.68%, a Return on Equity of 103.09%, and a Analysts' Rating of 2.00. The short interest was 11.66% as of 06/20/2012. 8x8, Inc. develops and markets telecommunications services for Internet protocol , telephony, and video applications. It also offers contact center, Web-based conferencing, and unified communications services, as well as cloud-based computing services. The company provides the 8x8 Virtual Office, a hosted private branch exchange service targeting the small and medium-sized business market; the 8x8 Virtual Contact Center service, an integrated hosted call center solution that works with various broadband Internet connections and offers enterprise class contact center functionality combined with Virtual Office calling features; the 8x8 Virtual Office Pro unified communications solution that allows subscribers to manage business communications functions online through a centralized Web-based portal; and the 8x8 managed hosting and cloud-based computing solutions for business customers.

*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.