4 Liquid, Low-Debt Small-Cap Tech Stocks

by: ZetaKap

By their nature and size, small-cap stocks, especially in the higher risk category of technology, tend to require keen scrutiny. Today we focused on two key indicators that are helpful in finding stocks well positioned for growth: debt ratios and cash reserves. By keeping debt a non-issue, companies can maintain their focus on building, rather than repaying. Further, a good level of liquidity is an asset that can provide a cushion for those unanticipated expenses or be accessed for special initiatives for expansion. Following this train of thought, we developed a list of small cap tech stocks with strong liquidity and minimal debt. If these traits appeal to you, then you will enjoy reviewing our list below.

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.

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).

We first looked for small-cap technology stocks. We next screened for businesses that have maintained a sound long-term capital structure (Long Term D/E Ratio<.1). We next screened for businesses that have maintained a sound capital structure (D/E Ratio<.1). We then looked for companies with a large amount of cash on hand (Current Ratio>2) (Quick Ratio>2).

Do you think these small-cap stocks have strong operations? Use our list along with your own analysis.

1) Exar Corp. (NASDAQ:EXAR)

Sector Technology
Industry Semiconductor - Integrated Circuits
Market Cap $365.22M
Beta 0.65

EXAR stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.02
Debt/Equity Ratio 0.03
Current Ratio 6.58
Quick Ratio 6.11
Short Interest 2.67%

Exar Corporation engages in the design, development, and marketing of high performance analog and mixed-signal integrated circuits and sub-system solutions for data and telecommunications, networking and storage, industrial control, and consumer applications. The company offers a portfolio of products, including power management and connectivity components, communications products, storage optimization solutions, network security, and applied service processors. The company was founded in 1971 and its headquarters is in Fremont, California.

2) Diodes Incorporated (NASDAQ:DIOD)

Sector Technology
Industry Semiconductor - Integrated Circuits
Market Cap $839.96M
Beta 2.13

DIOD stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.07
Debt/Equity Ratio 0.07
Current Ratio 4.27
Quick Ratio 3.06
Short Interest 9.03%

Diodes Incorporated, together with its subsidiaries, designs, manufactures, and supplies application specific standard products in the discrete, logic, and analog semiconductor markets primarily in Asia, North America, and Europe. Its products include diodes, rectifiers, transistors, MOSFETs, protection devices, functional specific arrays, low voltage complementary metaloxidesemiconductor logic, high speed CMOS logic, amplifiers and comparators, and Hall-effect and magnetic resistance sensors. It sells its products to the consumer electronics, computing, communications, industrial, and automotive industries through direct sales and marketing personnel, independent sales representatives, and distributors. Diodes Incorporated was founded in 1959 and its headquarters is in Plano, Texas.

3) Nanometrics Incorporated (NASDAQ:NANO)

Sector Technology
Industry Scientific & Technical Instruments
Market Cap $336.31M
Beta 1.76

NANO stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.03
Debt/Equity Ratio 0.03
Current Ratio 4.98
Quick Ratio 3.82
Short Interest 5.04%

Nanometrics Incorporated provides high-performance process control metrology systems used primarily in the fabrication of integrated circuits, high-brightness LEDs, data storage devices, and solar photovoltaics. It offers automated metrology systems that provide optical critical dimension, thin film metrology, and wafer stress for transistor and interconnect metrology applications; the Lynx cluster metrology platform for use in wafer metrology applications, including optical critical dimension, overlay, and thin film process control; and integrated metrology systems, which provide near real-time measurements. The company sells its metrology and inspection systems directly and through original equipment manufacturer channels to semiconductor manufacturers and equipment suppliers, and producers of high-brightness-LEDs, solar photovoltaics, data storage devices, silicon wafers, and photomasks worldwide. Nanometrics Incorporated was founded in 1975 and its headquarters is in Milpitas, California.


Sector Technology
Industry Scientific & Technical Instruments
Market Cap $1.20B
Beta 1.40

IIVI stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.02
Debt/Equity Ratio 0.02
Current Ratio 4.90
Quick Ratio 3.26
Short Interest 5.37%

II-VI Incorporated develops, refines, manufactures, and markets materials and derivative precision components and products worldwide. The company offers various precision infrared optical components, such as lenses, output couplers, windows, and mirrors for use in CO2 lasers; one micron laser components, including modular laser processing heads for fiber lasers, YAG lasers, and other one-micron laser systems; and beam delivery systems. generators, and thermoelectric assemblies for use in defense, medical equipment, industrial, and commercial applications; and silicon carbide products consisting of 6H-SiC semi-insulating and 4H-SiC conducting poly-types. The company markets its products through a direct sales force, and representatives and distributors. II-VI Incorporated was founded in 1971 and its headquarters is in Saxonburg, Pennsylvania.

Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/21/2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

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