Investors’ concerns over looming interest rate hikes have caused tech stocks to suffer a sell-off lately. However, investors are still optimistic about the overall tech sector, given ongoing digitization. In addition, a continued deepening of the remote life and work culture is expected to drive the growth of the tech sector. According to IDC, the technology industry is on pace to exceed $5.3 trillion this year.
Furthermore, small-cap tech stocks are expected to benefit as big tech deals with significant regulatory challenges in 2022, with multiple antitrust lawsuits. According to Francis Gannon, “Small caps today are about 8% below their most recent high and yet, fundamentals for many of the businesses continue to improve.”
Given this backdrop, we think it could be wise to bet on quality small-cap tech stocks NetScout Systems, Inc. (NTCT), Extreme Networks, Inc. (EXTR), and Celestica Inc. (CLS). They are currently trading at bargain prices.
NetScout Systems, Inc. (NTCT)
NTCT in Westford, Mass., provides service assurance and cybersecurity solutions for protecting digital business services against disruptions in the United States, Europe, Asia-Pacific, and internationally. Its unique products are nGeniusONE; nGeniusPULSE; and nGenius Business Analytics solution. Its market capitalization is $2.22 billion.
On Nov. 4, 2021, Anil Singhal, NTCT’s President and CEO, said, “As ‘Guardians of the Connected World,’ our solutions continue to be vital. We provide borderless visibility and cybersecurity solutions that assure and secure the performance, availability, and security of our customers’ digital ecosystems. Our customers can leverage these solutions to compete more efficiently and effectively in the new economy, which is increasingly essential given the most-recent challenges brought about by the COVID-19 pandemic.”
NTCT’s total revenue came in at $211.92 million for its fiscal 2022 second quarter, ended Sept. 30, 2021, up 3.2% year-over-year. Furthermore, its net income was $7.9 million, compared to a $3.69 million loss in the year-ago period. Its EPS was $0.11, versus a $0.05 loss per share in the previous period.
NTCT’s 2.57x forward EV/S is 31.5% lower than the 3.76x industry average.
Analysts expect NTCT’s revenue to increase 3.7% year-over-year to $886.56 million in its fiscal 2023. Its EPS is expected to increase 10.3% year-over-year to $1.92 in fiscal 2023. The stock surpassed EPS estimates in three of four trailing quarters. Over the past three months, it has gained 11.3% in price to close the last trading session at $29.80.
NTCT’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Value and a B grade for Growth and Quality. It is ranked #1 of 78 stocks in the Technology – Services industry. Click here to see the additional ratings for NTCT (Momentum, Stability, and Sentiment).
Extreme Networks, Inc. (EXTR)
EXTR provides software-driven networking solutions worldwide. With more than 50,000 customers globally, the San Jose, Calif.-based company continues to push the boundaries of technology, leveraging the powers of machine learning, artificial intelligence, analytics, and automation. Its market capitalization is $1.62 billion.
On Nov. 2, 2021, Ed Meyercord, President and CEO of EXTR, said, “Our continued success is directly linked to delivering on our Infinite Enterprise vision to reduce the complexity of running increasingly distributed networks at scale. The recently acquired Ipanema business brings game-changing SD-WAN capabilities to our portfolio, and further expands on this vision while strengthening our competitive position.”
EXTR’s service and subscription revenues increased 10.9% year-over-year to $82.52 million for its fiscal 2022 first quarter, ended Sept. 30, 2021. The company’s non-GAAP net income came in at $27.95 million, up 155.1% year-over-year. Also, its non-GAAP EPS was $0.21, up 133.3% year-over-year.
EXTR’s 1.64x forward EV/S is 56.4% lower than the 3.76x industry average.
For its fiscal 2022, analysts expect EXTR’s revenue to be $1.12 billion, representing an 11% year-over-year rise. The company’s EPS is expected to increase 36.8% year-over-year to $0.78 in fiscal 2022. Over the past three months, the stock has gained 27.6% in price to close the last trading session at $12.29.
EXTR has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The stock has an A grade for Growth and a B grade for Value and Quality. Within the Technology – Communication/Networking industry, it is ranked #1 of 55 stocks. Click here to see the additional POWR Ratings for Momentum, Stability, and Sentiment for EXTR.
Celestica Inc. (CLS)
Headquartered in Toronto, Canada, CLS provides hardware platform and supply chain solutions in North America, Europe, and Asia. It operates through two segments: Advanced Technology Solutions and Connectivity & Cloud Solutions. Its market capitalization is $1.34 billion.
On Oct. 25, 2021, Rob Mionis, President and CEO, CLS, said, “Our performance in recent quarters serves as a validation of our long-term strategy and transformation actions in the face of a challenging and constantly evolving business environment.”
For the fiscal third quarter, ended Sept. 30, 2021, CLS’ gross profit came in at $125.4 million, compared to $124.2 million in the year-ago period. The company’s net earnings for the period were $35.2 million, up 15.8% year-over-year. Its EPS was $0.28, up 16.7% year-over-year.
CLS’ 0.26x forward EV/S is 93.1% lower than the 3.76 industry average.
CLS’ revenue is expected to be $6.34 billion in fiscal 2022, representing a 12.4% year-over-year rise. In addition, the company’s EPS is expected to increase 21.7% year-over-year to $1.4 for its fiscal 2022. Also, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 15.8% in price to close the last trading session at $10.94.
It is no surprise that CLS has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has a B grade for Growth, Value, and Sentiment. CLS is ranked #2 of 78 stocks in the Technology – Services industry. Click here to see CLS’ ratings for Momentum, Stability, and Quality.
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NTCT shares were unchanged in premarket trading Wednesday. Year-to-date, NTCT has declined -9.92%, versus a -8.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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