Technology can be a difficult sector to invest in, even more so when looking for diamonds in the rough – that is, small companies that one day could break out and become big stars.
To find tech companies with a good shot at sustained growth, we first looked at all the tech companies currently being traded publically that qualify as “micro-caps,” or are currently worth under $300 million. When sifting through at all the microcaps currently being traded publically, we asked the following four questions:
#1: Does the stock not pay a dividend?
A tech company should be reinvesting profits, not divvying them out to investors. Tech is driven by innovation, and innovation is driven by reinvestment.
# 2 Does the company have a debt-to-equity ratio that is less than .5?
Generally long term debt for a technology company isn't a good thing as companies that fund themselves primarily with equity are more stable.
#3 Does the company have a gross margin higher than 50 percent?
Margins are extremely important for a technology company, the gross margin especially because it shows the profit after just the development costs. Tech companies rely on their product, and if the gross margin isn't right, the company is probably doomed.
#4 Does the company have a profit margin higher than 10 percent?
A tech company that doesn’t have a profit margin higher than ten percent still has a chance of success. But a company that does have a ratio that high (or higher) has likely stabilized, and is thus a safer investment.
We found the following eight American microcap tech stocks can answer “yes” to those four questions, and can thus be considered to have a solid foundation and potential for growth:
Professional Diversity Network LLC (IPDN)
This tech start-up helps connect job applicants with employers seeking applicants with specific backgrounds. The site's homepage directs companies to subpages listing applicants in the following categories: female; disabled; veteran; Hispanic, Asian; and black.
Professional Diversity Network is down 36.64 on the year to hit $4.90 a share.
ClearOne Communications Inc. (CLRO)
This software company provides video conferencing solutions for companies. On their website ClearOne touts their products as being “the most sophisticated, feature-rich systems on the market, offering unrivaled audio processing performance.”
The market seems to agree, and its fundamentals look sound. The company sports an impressive P/E ratio of 2.83.
ClearOne Communications is up a whopping 95.25 percent on the year to hit $8.38 a share.
NetSol Technologies, Inc. (NTWK)
NetSol is a global IT and enterprise application solutions company. They specifically cater to the financial and lending industries, as their software deals mainly with leasing/financing cycles. On Aug. 15 they announced a $5 million add-on agreement with an auto finance captive company.
NetSol Technologies is up 65.97 percent on the year to hit $10.13 a share.
Aware Inc. (AWRE)
DSL service assurance and biometrics form the core of Aware’s business. The company has been providing software to biometric companies for over 20 years, and sports a healthy P/E ratio of 6.92.
Aware is down 8.39 percent to hit $5.01 a share.
ORBCOMM, Inc. (ORBC)
This tech company offers global asset monitoring and messaging services from a number of satellites it has in orbit. The company originally launched 35 satellites into orbit, of which 29 remain viable for the company.
ORBCOMM is up 25.85 percent on the year to hit $4.89 a share.
NVE Corp. (NVEC)
Nanotechnology, or the manipulation of matter on a small (even atomic) scale, forms the core of NVE Corporation's research and product lines. Their specific brand of nanotechnology is dubbed "spintronics," which is nanotechnology that utilizes electron spin rather than charge to store and transmit information.
NVE is down 9.72 percent on the year to hit $50.49 a share.
Zix Corporation (ZIXI)
Zix specializes in email data protection. They're involved in the burgeoning area of cloud computing, and work with businesses to help them secure their email data on cloud storage devices. Device theft is a major problem in the US, and Zix provides solutions for keeping sensitive data entirely off of devices and instead in the cloud.
Zix is up 51.36 percent on the year to hit $4.40 a share.
Supertex Inc. (SUPX)
Supertex builds semiconductors, more specifically high voltage analog and mixed signal integrated circuits. On Jul 23 the company released positive quarterly earnings and expect 5 percent growth for the next quarter.
Supertex is up 31.71 percent on the year to hit $24.59 a share.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer