Tech stocks are rising once again following a sell-off last month. The decline in benchmark Treasury yields this week is in sync with the Fed’s decision to maintain its dovish monetary policies at least over the near term. As a result, technology companies, particularly small-cap businesses, are borrowing extensively to take advantage of the “cheap money” scenario to augment their products and services.
The global IT services market is expected to grow from $3.5 trillion in 2020 to $5.73 trillion by 2025 at a CAGR of 11% over the five years.
While large-cap tech companies are currently near business saturation levels, small-cap companies are moving in to leverage high demand amid the hybrid working environment to market their unique services. This is why we believe small-cap tech stocks QAD Inc. (QADA), CTS Corporation (CTS), and Avid Technology, Inc. (AVID) will generate significant returns in the coming months.
QAD Inc. (QADA)
With a market-cap of $1.27 billion, QADA provides cloud-based enterprise software solutions for global manufacturing companies across the automotive, life sciences, consumer products, food and beverage, high technology and industrial products industries. It enables measurement and control of business processes and supports operational requirements, including financials, manufacturing, demand and supply chain planning, customer management, business intelligence and business process management. The company markets its products through direct and indirect sales channels, and through distributors and sales agents also.
In February QAD Precision, a QADA division, achieved Team Tier status in the Veracode Verified program that validates a company’s secure software development processes. Also, QADA’s QAD DynaSys announced that month that that QAD DynaSys Digital Supply Chain Planning (DSCP) had achieved the Veracode Verified Standard Status. Furthermore, in January, QADA completed the acquisition of a German-based company, Allocation Network GmbH, which is a best-in-class solution provider for strategic sourcing and supplier management.
For its fiscal 2021 fourth quarter, ended January 31, 2021, QADA’s total revenue increased 5.6% year-over-year to $82.98 million. Its gross profit has increased 13.6% year-over-year to $51.51 million. The company’s operating income for the quarter came in at $7.25 million, up 1965.8% year-over-year. QADA’s non-GAAP pre-tax net income came in at $10.11 million, which represents a 165.2% rise year-over-year. Also, its EPS attributable to Class A shares has increased 1850% year-over-year to $0.39.
Analysts expect QADA’s EPS to improve 25% year-over-year for the current quarter, ending April 30, 2021, to $0.15. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. Also, its consensus revenue estimate of $78.55 million for the current quarter represents a 6.3% rise on a year-over-year basis.
The stock has gained nearly 69% over the past year and closed yesterday’s trading session at $64.36.
QADA’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Growth and Quality, and a B grade for Stability. We have also graded QADA for Value, Momentum, and Sentiment. Click here to access all QADA’s ratings.
QADA is ranked #8 of 116 stocks in the Software – Application industry.
CTS Corporation (CTS)
Founded in 1896, CTS is a manufacturer of sensors, electronic components and actuators. It designs, manufactures and sells a line of sensors, electronic components and actuators mainly to original equipment manufacturers (OEMs) in the transportation, industrial, medical, information technology, defense and aerospace, and communications sector. The company sells and markets its products through its sales engineers, independent manufacturers’ representatives, and distributors. It has a market capitalization value of $982.10 million.
CTS appointed Donna M. Costello, the former chief financial officer of C&D Technologies, Inc., to its board of directors, effective February 11, 2021. The company’s board of directors declared a cash dividend of $0.04 per share, payable on April 23. Also, on December 30, CTS acquired Sensor Scientific, Inc. (SSI), a privately held temperature sensing company. The acquisition is expected to expand CTS’ temperature sensing product portfolio and build on its strategy to focus on innovative products that sense, connect and move.
The company’s net sales were $123.02 million for the fourth quarter, ended December 31, 2020, which represents an improvement of 6.9% year-over-year. While CTS’ operating earnings came in at $17.14 million for the fourth quarter, up 38.3% year-over-year, its net earnings were $14.95 million, a 48.5% year-over-year improvement. Moreover, its non-GAAP EPS has increased 16.2% year-over-year to $0.43.
A consensus EPS estimate of $0.36 for the next quarter, ending June 30, 2021, represents a 125% rise year-over-year. Over f the trailing four quarters, CTS has surpassed consensus EPS estimates in each of the quarters. The company’s consensus revenue estimate of $120.92 million for the current quarter, ending March 31, 2021, represents a 17.3% rise from the prior year period.
The stock has rallied 46.7% over the past year to close yesterday’s trading session at $30.36. Also, it has gained 40.6% over the past six months.
It’s no surprise that CTS has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock also has an A grade for Quality and a B grade for Growth, Momentum, Stability, and Sentiment. Click here to see CTS’ POWR Rating for Value as well.
CTS is ranked #2 of 43 stocks in the B-rated Technology – Electronics industry.
Avid Technology, Inc. (AVID)
With a $868.89 million market-cap value, AVID provides an open and integrated technology platform and applications and services that enable the creation, distribution and monetization of audio and video content. The company develops, markets, sells and supports software and hardware for digital media content production, management, secured content storage and distribution. In addition, it offers various service contracts and support plans, professional services, and public and private training to customers and alliance partners.
This month, AVID launched the Avid Learning Academy Program in collaboration with book publisher Rowman & Littlefield. The program will offer solutions for K-12 media arts educators to train and officially certify students on AVID’s creative software tools. Sessions are expected to begin in September. The new Avid | Edit On Demand subscription service, released by AVID on March 8, enables customers of production companies, post houses and broadcasters to access AVID’s Media Composer editing software and NEXIS cloud storage from anywhere.
AVID has also formed a partnership with Haivision to enable the ingest of incoming IP streams for television news and remote live TV production scenarios in both on-premises and cloud-based production workflows.
AVID’s net sales have increased 15.3% sequentially to $104.30 million for the fourth quarter, ended December 31, 2020. The company’s non-GAAP gross profit was $65.78 million, which represents a 12.1% improvement sequentially. Its non-GAAP operating income was $19.45 million, up 12.2% sequentially. Furthermore, AVID’s non-GAAP net income has increased 25.3% year-over-year to $15.23 million, and its non-GAAP EPS has increased nearly 18% year-over-year to $0.33.
Analysts expect AVID’s EPS for fiscal 2021 to be $1.14, representing an increase of 75.4% year-over-year. The company surpassed a consensus EPS estimate in three of the trailing four quarters. For the next quarter, ending June 30, 2021, analysts expect AVID’s revenue to be $88.01 million, representing an 11% rise from the prior year period.
The stock has gained 213.5% over the past year and more than 23% so far this year. It closed yesterday’s trading session at $19.53.
The POWR Ratings are also high on AVID; it has an Overall Rating of A, which translates to a Strong Buy. AVID also has an A grade for Quality along with a B grade for Value, Growth, Momentum, and Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see AVID’s ratings for Stability here.
AVID is ranked #4 of 81 stocks in the Technology – Services industry.
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QADA shares were trading at $64.43 per share on Monday afternoon, down $1.58 (-2.39%). Year-to-date, QADA has gained 1.98%, versus a 6.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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