These 10 small-cap tech stocks to buy could all outperform your stodgy old S&P 500 index fund
Are you interested in tech stocks? Unfortunately, investors generally don’t think about small-cap tech stocks to buy. It’s probably why out of a list of 64 tech ETFs, only one has any focus on smaller companies.
I’m talking about the Invesco S&P SmallCap Information Technology ETF (NASDAQ:PSCT), which has been around since April 2010. Yet, it has only $510 million in total net assets. That’s less than $47 million per year since its launch.
The fund tracks the performance of the S&P SmallCap 600 Capped Information Technology Index, which is a subset of the S&P SmallCap 600. The largest weighting any single stock can have in the index is 22.5%. In addition, stocks with weightings of greater than 4.5% cannot exceed 45% of the total index.
The ETF currently has 69 holdings. The average stock in the portfolio has a market capitalization of $3.0 billion, a price-to-earnings ratio of 22.7x and a price-to-book of 3.6x. In terms of performance, since inception, it’s delivered an annual total return of 16.38%, 288 basis points higher than the S&P SmallCap 600.
Here are 10 stellar small-cap tech stocks to buy before the market catches on:
- Power Integrations (NASDAQ:POWI)
- SPS Commerce (NASDAQ:SPSC)
- Perficient (NASDAQ:PRFT)
- ExlService (NASDAQ:EXLS)
- Fabrinet (NYSE:FN)
- Vonage (NASDAQ:VG)
- Alarm.com (NASDAQ:ALRM)
- Viavi Solutions (NASDAQ:VIAV)
- Evertec (NYSE:EVTC)
- Bottomline Technologies (NASDAQ:EPAY)
These tech stocks to buy today could be the multibagger growth stocks of tomorrow.
Small-Cap Tech Stocks to Buy: Power Integrations (POWI)
Power Integrations is a Californian manufacturer of high-voltage power-conversion products. It’s got more than 30 years of experience providing innovative products to the clean-tech sector.
On Oct. 28, the company reported Q3 2021 earnings that beat analyst estimates. On the bottom line, it delivered 84 cents a share, while analysts were expecting 78 cents. The company has beaten analyst estimates for four straight quarters. On the top line, revenues were slightly higher than the consensus, up 46% to $177 million.
The company’s trailing 12-month (TTM) free cash flow (FCF) is $160 million, good for an FCF margin of 23.5% and an FCF yield of 2.6%.
POWI stock has a year-to-date total return of 24.5% and a five-year annualized total return of 26.1%.
SPS Commerce (SPSC)
This Minneapolis company is a friend to retail. Its cloud-based supply chain management solutions through the SPS Commerce platform help retailers analyze data from their businesses more efficiently. It works with more than 95,000 companies in retail, distribution, grocery and ecommerce.
On Nov. 3, SPS announced that it would acquire Genius Central, a software solution provider for the natural and organic foods industries.
“We believe this partnership will strengthen SPS’ leadership in food retail, food distribution, and health and wellness, while we expand our community across the grocery industry,” stated SPS CEO Archie Black in its press release.
SPS reported its Q3 2021 results on Oct. 28. Revenues were $97.9 million in the quarter, 23% higher than a year earlier. It earned 47 cents a share on an adjusted basis, 8 cents higher than Q3 2020. SPS expects revenues of at least $382.4 million and adjusted earnings of at least $1.76 a share for the entire year.
SPS stock has a year-to-date total return of 31.8% and a five-year annualized total return of 34.2%.
If you’re the CEO of a company looking to transform your business digitally, Perficient is the digital consultant you reach out for help on the Herculean task. This company does business with more than 300 of the Fortune 1000 and more than 90% of revenue is repeat business. It’s been helping companies for more than 20 years.
In terms of recent news, PRFT announced on Oct. 15 that it would acquire Latin American software development firm Overactive. That company has approximately $40 million in annual revenue. Based in Montevideo, Uruguay, the acquisition provides Perficient with additional resources for projects in both Latin America and worldwide. No terms were given for the acquisition.
Perficient’s sales were 22% higher than a year earlier at $193 million in the third quarter. Adjusted earnings per share were 88 cents, 31% higher year-over-year. In addition, it secured 80 consultancy deals of $500,000 or more during the quarter, 14 more than in Q3 2020.
Perficient stock has a year-to-date total return of 196.4% and a five-year annualized total return of 51.8%.
Founded in 2002, this company provides other companies with operations management and data analytics experience to help them grow their businesses. It operates four business units: Insurance, Healthcare, Analytics and Emerging Business.
ExlService was recently named a top performer in the 2021 KLAS Risk Adjustment & Analytics Performance Report. The report found that the company’s EXLClarity platform healthcare stakeholders make better risk-adjusted decisions about its patient population.
Data, when used correctly, can do a fantastic amount of good for corporations.
On Nov. 2, EXLService reported its Q3 2021 results. Revenue grew by 20.5% in the third quarter to $290.3 million, with a strong showing from its Analytics business. In addition, all four of its operating units saw healthy growth in the quarter. On the bottom line, it had adjusted earnings per share of $1.30, 25% higher than a year earlier.
EXLS has a year-to-date total return of 61.3% and a five-year annualized total return of 25.2%.
Fabrinet provides outsourced manufacturing services to companies of all sizes. It specializes in precision optical, electro-optical and electromechanical process technologies. Industries it works with include companies in aerospace, automotive, industrial, healthcare and others.
Now, I’ll be the first to admit that I’m not one to enjoy the finer details of this type of business — give me Nike (NYSE:NKE) or Lululemon (NASDAQ:LULU) any day — but without companies like Fabrinet, things would never get made.
In the first quarter of 2022, Fortinet reported sales of $543.3 million, a record for the quarter and 24.4% higher than Q1 2021. Non-GAAP net income rose 37.9% to $54.2 million.
The five analysts covering Fabrinet give it an Overweight rating with a median target price of $113. While that’s lower than its current share price, earnings estimates for 2021 ($5.89 a share) and 2022 ($6.45 a share) suggest that target prices will rise in 2022.
FN has a year-to-date total return of 55.1% and a five-year annualized total return of 24.2%.
Vonage provides unified communications, contact centers and programmable communications APIs (application programming interface) through its cloud communications platform.
Vonage recently acquired Jumper.ai, a company that specializes in conversational commerce. Jumper’s software platform enables brands to have actual conversations with their customers. This market is expected to generate $290 billion annually worldwide by 2025.
The company reported Q3 2021 results on Nov. 4. Revenues were 13.2% higher to $358.3 million, while adjusted net income was $10 million, 41.2% less than Q3 2020. Less than stellar results, which is why activist investor Jana Partners has been pushing to sell all or part of the company.
Despite its activist fight, VG stock has a year-to-date total return of 32.1% and a five-year annualized total return of 21.8%. That should be attractive to investors looking for a buy on the dip.
The name makes you think that Alarm.com is a provider of residential and commercial alarm systems. In reality, the company provides a SaaS (software-as-a-service) platform solution for the connected home. Alarm.com makes money from the more than 10,o00 service providers who resell its services for the connected home. The company is paid a monthly fee for providing these services.
In May, PointCentral, the company’s subsidiary that provides smart home solutions to the vacation and short-term rental property market, was given a Keystone Award by the Vacation Rental Marketing Blog in the Smart Home Automation category. It was also named the Best Home Automation Solution or Product by The Shortyz Awards, the ‘Oscars’ of the short-term rental industry.
In the third quarter, revenues increased 21.1% over the previous year to $192.3 million. Its SaaS revenue accounted for more than 61% of its overall sales. Its adjusted net income was $27.4 million, 10.5% higher than a year ago.
ALRM stock is one of only two names on this list down year-to-date, with a YTD return of -17.9%. However, its five-year annualized total return is a healthy 22.6%.
Viavi Solutions (VIAV)
The company had an excellent first quarter of fiscal 2022. On Nov. 4, it announced revenues were 14.8% higher to $326.8 million, while its non-GAAP earnings per share rose 14.3% in the quarter to $0.24. Its top-line revenue was a record for the first quarter thanks to strong sales from its Network and Service Enablement (NSE) business.When I first thought about adding Viavi to the list, I had no idea what the company did. I just knew that it had decent financials. It turns out this company was formerly JDS Uniphase until it was renamed in 2015. Viavi products help Service Providers and IT organizations manage their 5G and Fiber networks. In addition, it provides optical coatings for banknotes to protect against counterfeiters.
In the quarter, the company paid down $275 million of its convertible notes, representing 40% of its outstanding balance. It paid for the notes with $197 million in cash and by issuing 10.6 million shares. It plans to repurchase up to $190 million by the end of the third quarter to bring its share count back in line.
VIAV has a YTD total return of 1.3%. Its five-year annualized total return is a decent 14.2%.
Based in San Juan, Puerto Rico, Evertec provides transaction processing services to financial institutions in the Caribbean and Latin America. Its electronic payment networks process more than two billion transactions annually. It operates in 26 Latin American countries. Its largest shareholder with a 16.2% stake is Popular (NASDAQ:BPOP), Puerto Rico’s largest bank by assets.
On Oct. 27, the company signed an agreement with Caja Popular Mexicana, a Mexican savings and loan cooperative. The deal included Evertec providing a new Mastercard credit card on its PayStudio platform to the cooperative’s more than three million members.
Evertec’s third-quarter results include a 7% increase in revenue to $145.9 million and a 5% increase in adjusted earnings to 62 cents a share. The company expects its 2021 full-year revenue of at least $574 million and adjusted earnings per share of $2.61.
EVTC stock has a YTD total return of 11.4%. Its five-year annualized total return is 23.2%.
Bottomline Technologies (EPAY)
Bottomline Technologies provides companies with business payment solutions, including accounts payable, payment processing, working capital optimization, spending and cash management and other payments-related services. In addition, the company makes recurring revenue through customer subscriptions.
Over the past decade, the company has grown its subscription revenue by 21%, compounded annually from $55 million in fiscal 2011 to $385 million in fiscal 2021. Approximately 82% of its revenue is from subscriptions, while 93% is recurring in nature. The rest comes from software licenses and service and maintenance.
On Nov. 9, it made a small acquisition, paying $15 million for Bora Payments Systems, a B2B (business-to-business) card payment platform. It was created to add new bank customers, strengthening its virtual card program. It’s not material to the business’s revenue.
In Q1 2022, the company grew subscription revenue by 15% to $103.5 million. Its adjusted EBITDA in the quarter was $23.1 million, down from $26.2 million a year earlier. The company believes that its plan to grow its total addressable market organically and through acquisitions is on track in fiscal 2022. It projects full-year 2022 subscription revenues of at least $445 million (15-16% growth YOY) with core earnings per share of $1.13 at the midpoint of its guidance.
EPAY stock has a YTD total return of -12..4%. Its five-year annualized total return is 13.7%.
This article originally appeared at InvestorPlace.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.