Five Small-Cap Tech Stocks That Could Make Appealing Growth Plays

Jianyu Zhao |

With more small-cap technology companies emerging every day, it’s easy for investors to get overwhelmed. With so many options, it can be difficult for retail investors to make decisions of choosing one. Benefits and risks coexist to any decision you might make.

Given that the market for growth stocks appears to be recovering, small caps are attracting a lot of attention, especially in the technology industry. There are five technological companies in particular, despite their small size, showing a potential of growth. We put together a screening methodology to identify those tech companies we though might have strong potential.

First, we looked at companies with a market cap of $10 billion or lower, extending our screen into the mid-cap range, though all of our final results were below $1 billion in market cap. Then, we took all those companies that displayed year-over-year EPS growth of at least 20 percent and EPS growth of at least 15 percent over the last five years. Then we eliminated any of those companies with a PEG ratio, a method for comparing current price to projected EPS growth, over 2.0. This shows that the companies in our screen have had growth in earnings and anticipate that trend continuing.

Then, we eliminated any stocks with an average daily volume lower than 50,000 shares to ensure that we had actively traded stocks. We also looked for those companies receiving an average analyst rating of "strong buy."

So this screen should highlight growing companies that would appear to have a bright future. Here are the four names that our screen produced:

Oplink Communication, Inc. (OPLK)

Market Cap: $312.08 Million

Projected EPS Growth next year: 68.60 percent

EPS Growth Past 5 Years: 33.40 percent

PEG Ratio: 1.71

Average Daily Volume: 110.51 K

Analyst: Strong Buy

Oplink Communication is a Fremont, CA-based company that designs, manufactures, and sells optical networking components and subsystems worldwide. The company has been on the rise. By May 30, the stock’s price of $16.86 has increased 4.72 percent for the first half of 2014.

CalAmp Corp. (CAMP)

Market Cap: $686.45 Million

Projected EPS Growth next year: 26.88 percent

EPS Growth Past 5 Years: 16.70 percent

PEG Ratio: 1.93

Average Daily Volume: 1.05 M

Analyst: Strong Buy

Founded in 1981, CalAmp Corp. is an Oxnard, CA-based company that develops and markets wireless communications products and solutions for worldwide applicants. Though the company’s stock went through a decline during the past two months, the current price of $19.10 could be a great entry opportunity given its average price target of $29.35.

RigNet, Inc. (RNET)

Market Cap: $833.17 Million

Projected EPS Growth next year: 37.39 percent

EPS Growth Past 5 Years: 26.00 percent

PEG Ratio: 1.42

Average Daily Volume: 94.91 K

Analyst: Strong Buy

RigNet is a Houston, TX-based company, founded in 2000, that provides network infrastructure services for the remote communications needs of the oil and gas industry. The company operates through three segments, including the Americas, Europe/Africa, and Middle East/Asia Pacific. Despite the company has been on the decline since March, the current price of $47.42 might be a good entry opportunity given its average price target of $60.67 price target.

Zhone Technologies, Inc. (ZHNE)

Market Cap: 100.19 Million

Projected EPS Growth next year: 100 percent

EPS Growth past 5 Years: 15.40 percent

PEG Ratio: 1.04

Average Daily Volume: 483.91 K

Analyst: Strong Buy

Founded in 1999, Zhone Technologies is an Oakland, CA-based company that provides communications network equipment for telecommunications, wireless, and cable operators worldwide. The IP Zhone is the only solution that enables service providers to build the network of the future today. On May 29, the company announced that it would provide senior living facilities to enable better care and more independence for residents. Analysts are expecting the stock to go higher, giving it an average price target of $6.00.

PDF Solutions (PDFS)

Market Cap: $607.96 million

Projected EPS Growth next year: 21.57 percent

EPS Growth past 5 Years: 17.00 percent

PEG Ratio: 1.40

Average Daily Volume: 230.72 K

Analyst: Strong Buy

PDF Solutions is a San Jose, CA-based company that develops integrated technology and provides services to companies engaged in the manufacture of integrated circuits. Founded in 1992, PDF Solutions helps customers focus their entire process life cycle.

 

Data current as of 8:00 am ET June 2, 2014. Source: finviz.com and finance.yahoo.com.

 

 

 

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

Companies

Symbol Name Price Change % Volume
CAMP CalAmp Corp. 15.91 0.47 3.04 478,723
PDFS PDF Solutions Inc. 22.98 0.12 0.52 155,842
ZHNE Zhone Technologies Inc. n/a n/a n/a n/a
RNET RigNet Inc. 21.85 2.95 15.61 153,966
GYSTD Graystone Co Inc A n/a n/a n/a 0

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