In August 2013 we went looking for microcap stocks in the tech sector that looked poised to break out. We found eight that met our criteria, and listed them along with short summations of their business model. And then we left it at that. But we got to wondering: how did those stocks end up turning out?
So we decided to check back in and see how our plays fared over the last eight months.
We used the following criteria to isolate our microcap tech plays:
#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:
Here are the eight plays we isolated, their price at time of original publication, and their price as of close on April 22, 2014.
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.
August 25, 2013 Price: $4.90
April 22, 2014 Price: $3.58
Return: -27 percent
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.
August 25, 2013 Price: $8.38
April 22, 2014 Price: $9.81
Return: +17.1 percent
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.
August 25, 2013 Price: $10.13
April 22, 2014 Price: $4.56
Return: -55 percent
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.
August 25, 2013 Price: $5.01
April 22, 2014 Price: $5.62
Return: +12.2 percent
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.
August 25, 2013 Price: $4.89
April 22, 2014 Price: $6.57
Return: +34.4 percent
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.
August 25, 2013 Price: $50.49
April 22, 2014 Price: $56.53
Return: +12 percent
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.
August 25, 2013 Price: $4.40
April 22, 2014 Price: $3.88
Return: -11.8 percent
Supertex Inc. (SUPX)
Supertex built semiconductors, more specifically high voltage analog and mixed signal integrated circuits.
On April 1 Supertex was acquired by Microchip for $33.00 a share.
August 25, 2013 Price: $24.59
April 22, 2014 Price: N/A (closed out at $33 a share.)
Return: +34.1 percent
TOTAL RETURN OF THE EIGHT MICROCAP TECH PLAYS: +2 percent
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