Technology can be a sector of big risks and big rewards. Many companies in the sector are trying to use new technologies and business models to make money, and it can result in big booms or bigger busts. Google (GOOG) or Apple (AAPL) are prime examples of why the sector gets so much attention, showing explosive growth that made huge profits for shareholders. However, for every Google or Apple there's a smaller company that went the way of the dodo. So, here are five tech companies that might be headed for trouble without major changes.
Salesforce.com is a website offering CRM solutions to businesses of all sizes while also providing a technology platform for customers and developers to build their own business applications. Salesforce represents an industry leader, but the stock has several underlying concerns that might give investors serious pause before buying shares. The most troubling number could be the P/E ratio of over 6,000. While earnings are projected to grow steadily over the next five years, the forward P/E is still over 80 and the PEG is PEG ratio is also very high. Throw in a negative operative margin and Salesforce could be headed for trouble.
Aspen Technology (AZPN)
Aspen provides process optimization software solutions. Its aspenONE software helps plants, mostly in the process industries like energy, chemicals, engineering, and construction, to optimize their process to work more efficiently. Unfortunately for Aspen, though, its own process doesn't appear to be as efficient as it needs to be. Aspen's operating margin comes in at -15 percent, showing a need to improve profit margins significantly in the future. The company's valuations are also week, with a P/E ratio exceeding 70, a Forward P/E over 90, and a PEG of 6.34.
Servicesource International (SREV)
Servicesource is a provider of software solutions for businesses, specifically focused on solutions that drive maintenance, support, and subscription renewals for technology companies. Servicesource has been on the rise in 2012, but the underlying valuations of the company offer plenty of reasons why an investor might balk at buying in. A negative operating margin is one issue, as is the sky-high price when gauged against earnings and a P/B value over 6. Servicesource does have some very strong projections for earnings growth, expecting 27 percent over the next five years, but the company clearly has a hurdle to clear before it will look attractive on paper again.
NCR Corporation (NCR)
NCR provides technology products that aid a variety of businesses in connecting, interacting, and transacting with customers. It's a global business operating in a wide variety of industries and sectors. However, despite its broad scope, NCR has some fairly bearish valuations. While the Forward P/E of 8.80 offers hope for the future, the current P/E sits over 70 and the PEG is about 6. Through in a razor thin operating margin of 1.12 percent and NCR might be a company that struggles with generating revenue in the future.
MicroStrategy provides business intelligence software to a global market, helping companies analyze and monitor data stored across their enterprises. The company's been strong so far this year, posting a 15 percent gain so far in 2012. However, a closer look at the company's valuations might paint a picture that's not so sunny. With a P/E of over 77, an operating margin of just 2.68 percent, a P/B of almost 8, and a P/FCF closing in on 140, MicroStrategy might be one tech company that's in trouble.
*All data from finviz.com.
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