Small cap stocks can sometimes get a bad rap. Tech companies in this category are too big to have the scrappy-startup story that tugs at Silicon Valley heartstrings and opens investor wallets but not big enough – think north of $2 billion – to attract buyers who value well-capitalized, ‘quality’ companies with lower risk of flaming out during a financial downturn.
But there’s an upside to all these downsides and the savvy investor willing to look past some of the stereotypes could benefit from the pass most people are giving these diamonds in the Nasdaq rough. There is always risk, of course, but betting on these tech underdogs could have a very real payoff.
Intelligent Systems (AMEX: INS) has been around for forty years but has only recently broken into the fintech business. They offer a payment platform with a wide array of software solutions designed to help companies of all kinds with managing their debit and credit card transactions. They are popular in high growth markets like Romania and India that haven’t yet been dominated by the bigger brands.
Their March 2019 quarterly earnings showcase a very splashy $6 million in sales – up an impressive 138 percent over the prior year. Shares are also trending upward at an epic 585 percent year-to-date increase at Friday’s close. With strong projections for future cash flow and a highly motivated leadership team with serious skin in the game, Intelligence Systems represents a solid growth opportunity for those willing to wait out the ups and downs of today’s tech market.
Another interesting option is New Relic (NYSE: NEWR), a cloud-based analytics company that wants to help their customers collect data and crunch their performance monitoring numbers for technology applications. According to analyst John Friedman, New Relic has the third largest market share and is the fastest growing company amongst its top ten competition. Friedman goes on to wax poetic about how New Relic’s saga bears a striking semblance to the multi-billion-dollar tech unicorn SalesForce. Their stock price sat at $86.51 at Friday’s close and like many of its software brethren, have been subject to high volatility in the last three months. Revenue growth estimates are coming in at a solid 18.8 percent over the next one to three years, according to analysts.
The third one on offer is Proofpoint (NASDAQ: PFPT). It is an up and coming cloud-based cybersecurity firm that first IPO’d in early 2012. Their stock has risen 33 percent year-to-date and was $120.25 USD at close Friday. With a market cap $385.6 million, Proofpoint attracted some favorable attention from equities analysts in April with Morgan Stanley setting a target price of $142 and granting the stock a ‘buy’ rating. Wells Fargo & Co upped their target price from $120 to $150 and bestowed an ‘outperform’ rating upon them at the same time. With the increase of high-profile hacks on big businesses, online security is becoming a priority issue for more and more companies – Morgan Stanley has projected that cybersecurity could grow by more than four times the overall information technology spending by 2020.
Sources:
https://www.investopedia.com/investing/introduction-to-small-cap-stocks/
https://www.marketwatch.com/story/the-next-big-thing-in-tech-is-hiding-among-the-small-caps-2019-03-29
https://money.usnews.com/investing/stock-market-news/slideshows/7-small-cap-tech-stocks-to-buy-now
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
