The worldwide IT services market is expected to expand at a CAGR of 11% through 2025. The rising demand for technology solutions amidst an ongoing digital transformation has raised the profile of technology stocks. However, while large technology stocks are witnessing a degree of correction after skyrocketing since the onset of the COVID-19 pandemic, small-cap players in the sector are gearing up for strong performance amid a fast-paced economic recovery. Small-cap stocks tend to perform better than their large-cap counterparts when the economy is in a recovery phase.
As evidence of this, the Russell 2000 index, which tracks the performance of small-cap stocks, has gained 3.2% over the past five days.
Further favoring small-cap technology stocks is the Federal Reserve’s dovish monetary policy stance, which is allowing these companies access cheap capital to scale quickly. In the absence of capital constraints thanks to the low-interest environment, small-cap technology stocks are well positioned to expand and innovate quickly.
CTS Corporation (CTS), Universal Electronics, Inc. (UEIC), Aviat Networks, Inc. (AVNW), and Franklin Wireless Corporation (FKWL) are four companies that are innovating quickly and releasing next-generation solutions to increase their market share. These companies have strong track records, and we think are likely to continue performing well.
CTS Corporation (CTS)
CTS designs, manufactures, and markets electronic components. The company’s products find application in the communications, medical, defense, aerospace, and other industries. CTS has gained 48.6% over the past year to close Monday’s trading session at $32.14.
CTS recently acquired Sensor Scientific, Inc., a privately held temperature sensing corporation. This acquisition is meant to expand CTS’ portfolio of temperature sensing products.
For the quarter ended December 31, 2020, CTS’ sales rose 7% year-over-year. The company’s free cash flow grew 28% during the same period.
CTS is expected to see 17.3% revenue growth for the quarter ended March 31, 2021 and 11.6% in 2021. Its EPS is estimated to grow 30.4% in 2021 and 11% per annum over the next five years.
CTS’s strong fundamentals are reflected in its POWR Ratings. The stock has an A overall rating, which equates to Strong Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
It also has an A grade for Quality and B for Growth, Momentum, Sentiment, and Stability. In the B- Rated Technology – Electronics industry, it is ranked #2 of 42 stocks.
In total, we rate CTS on eight different levels. Beyond what we’ve stated above, we have also given CTS a grade for Value. Get all the CTS ratings here.
Universal Electronics, Inc. (UEIC)
UEIC develops, manufactures, and markets electronic devices, such as wireless remote controls and audio-video accessories. The company also develops software for home-entertainment systems.
For the quarter ended December 31, 2020, the company’s gross margins increased to 32.7% versus 28.5% during the same period last year. The company’s operating income increased 8.7% during the same period.
UEIC is expected to see 7.7% revenue growth in 2021. Its EPS is estimated to grow 12% in 2021 and 15% per annum over the next five years. UEIC’s stock price has increased 62.9% over the past year and its last closing price was $56.8.
The company recently launched a new remote control for Apple TV that is specifically designed for MVPDs. The remote control will be made available worldwide and will offer specific controls to enhance the live TV experience.
It’s no surprise that UEIC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. UEIC has an A grade for Sentiment, and B for Stability, Value, Momentum, and Quality. In the same industry, it is ranked #1 of 42 stocks.
Click here to see the additional POWR Ratings for UEIC (Growth).
Aviat Networks, Inc. (AVNW)
AVNW a range of wireless networking solutions. The company has worldwide operations.
AVNW is expected to see 10.2% revenue growth of 10.2% in 2021. Analysts expect the company’s EPS to grow 180.1% in 2021 and 12% per annum over the next five years. AVNW has returned 893.9% over the past year to close Monday’s trading session at $83.49.
AVNW has been selected by Nextlink Internet to help assist with the development of networks for rural broadband. AVNW is also playing a key role in rural broadband expansion undertaken by LTD Broadband.
For the quarter ended January 1, 2021, the company’s total revenue has increased 26% compared to the same period last year. The company’s revenue from U.S. sources has increased 34.8% during the same period.
AVNW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary ratings system. AVNW also rated an A in Growth and Sentiment, and a B in Value and Quality. In the B-rated Technology – Communication/Networking industry, it is ranked #2 of 55 stocks.
Beyond what we’ve stated above we also have given AVNW grades for Momentum and Stability. Get all the AVNW ratings here.
Franklin Wireless Corporation (FKWL)
FKWL intelligent wireless solutions. The company has global operations. FKWL has gained 423.2% over the past year to close Monday’s trading session at $20.75.
For the quarter ended December 31, 2020, the company’s revenue has increased 399.5% compared to the same period last year. The company’s net income was $6.9 million, $6.3 million higher than its year-ago number.
FKWL was recently approved for listing on the NASDAQ under the ticker FKWL. The company has also recently shipped its first 5G broadband router.
The POWR Ratings are also high on FKWL; it has an Overall Rating of A, which translates to a Strong Buy. FKWL also has a Growth, Sentiment, and Value ratings of A, along with a Quality rating of B. In the B-rated Technology – Communication/Networking industry, it is ranked #2 of 40 stocks.
Click here to see the additional POWR Ratings for FKWL (Momentum, and Stability).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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CTS shares were trading at $31.69 per share on Tuesday afternoon, down $0.45 (-1.40%). Year-to-date, CTS has declined -7.58%, versus a 9.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...
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