Large- and mid-cap technology stocks have delivered stellar returns over the past year due to  changes in consumer behavior. At the peak of their run in September 2020, the top five technology companies accounted for 25% of the value of the S&P 500. Their astonishing rally has led several analysts to conclude that the market has entered a bubble period, similar to the 2000 dot-com bubble, which may burst at any time.

We think that to protect against a market downturn, it may be better to invest in small-cap technology stocks that are overlooked and have upside potential. The re-opening of the economy with the COVID-19 vaccine rollout is expected to be more favorable for small-cap stocks than  their large- and mid-cap counterparts that are already trading at high valuations. In particular, small-cap stocks in the technology space may deliver high rewards due to greater scalability.

Silicon Motion Technology Corporation (SIMO), Axcelis Technologies, Inc. (ACLS), ChannelAdvisor Corporation (ECOM), and Mitek Systems, Inc. (MITK) are on a trajectory for strong growth, we believe. These companies are innovating fast and their latest offerings may drive their stock prices higher.

Silicon Motion Technology Corporation (SIMO)

SIMO designs, develops, manufactures, and markets low-power semiconductor solutions to enterprise customers. The company operates primarily  in the mobile communications and storage segments. SIMO’s stock has gained 33.9% over the past year and closed Friday’s trading session at $61.7.

SIMO  recently launched its  SM8266 solid-state drive. The SM8266 is an enterprise-grade 16-channel PCIe 4.0 NVMe hardware plus firmware turnkey SSD controller solution. The company has also launched PCIe 4.0 NVMe 1.4 Controller Solutions for Client SSDs.

For the quarter ended December 31, 2020, SIMO’s  net sales grew 14% versus  the prior quarter. The company’s eMMC+UFS controller sales grew 65% during the same period.

SIMO is expected to see a revenue growth of 17.8% for the quarter ended March 31, 2021 and 26.2% in 2021. Its  EPS is estimated to grow 25% in 2021 and at a rate of 7% per annum over the next five years.

SIMO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

SIMO  has an A grade for Value and Sentiment. In the A-rated, 98-stock Semiconductor & Wireless Chip industry, it is ranked #23.

In total, we rate SIMO on eight different levels. Beyond what we stated above we have also given SIMO grades for Stability, Quality, Momentum, and Growth. Get all the SIMO ratings here.

Axcelis Technologies, Inc. (ACLS)

ACLS designs, develops, and manufactures and services ion implantations and other processing equipment. The company’s products are used in the manufacture of semiconductor chips worldwide. ACLS’s stock has returned 51.9% over the past year; its last closing price was $39.75.

The company has shipped its Purion H200™ High Current Implanter to a leading power device manufacturer. ACLS has also delivered several Purion VXE and EXE high-energy systems to various manufacturers.

For the quarter ended December 31, 2020, the ACLS’ revenue grew 14% versus the same period last year. Its  gross profit grew 19.4% during the same period.

ACLS’s revenue is estimated to increase 6.3% for the quarter ended March 31, 2021 and 12.2% in 2021. Its  EPS is expected to rise 30.4% in 2021 and at the rate of 20% per annum over the next five years.

It’s no surprise that ACLS has an overall rating of B, which equates to Buy in our POWR Ratings system. ACLS has a B grade  for Quality, Value, Momentum, and Sentiment. In the 98-stock Semiconductor & Wireless Chip industry, it is ranked #28.

Click here to see the additional POWR Ratings for ACLS (Growth and Stability).

ChannelAdvisor Corporation (ECOM)

ECOM provides SaaS solutions that help enterprise customers manage their sales across various channels. The company has worldwide operations. ECOM’s stock closed Friday’s trading session at $25.63, returning 156.6% over the past year.

The company  recently added  platform enhancements to  its digital platform. Clients can now better manage product data, monitor fulfilment, and expand to new channels.

For the quarter ended December 31, 2020, the company’s revenue rose 16% year-over-year. Its  subscription revenue grew 8% during the same period.

ECOM’s revenue is expected to grow 16.9% for the quarter ended March 2021 and 7.1% in 2021. Its  EPS growth is expected to be 8% per annum over the next five years.

ECOM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary ratings system. ECOM has an A  grade  for Momentum and Quality. In the 45-stock Internet – Services industry, it is ranked #5.

Beyond what we stated above, we have also given ECOM a grade for Growth, Sentiment, Stability, and Value. Get all the ECOM ratings here.

Mitek Systems, Inc. (MITK)

MITK develops and markets mobile capture and identity verification software solutions. The company operates primarily in the United States. Its  stock has gained 70.5% over the past year and closed its last trading session at $16.35.

MITK  recently developed and incorporated Near Field Communication technology into its identity verification workflow. The new technology will help improve the speed and accuracy of identity verification. MITK  has also partnered with Nova Credit to help immigrants to the United States establish a credit history in the United States.

For the quarter ended December 31, 2020, the company has witnessed  revenue growth of 18% year-over-year. The company’s net income increased 23% during the same period.

MITK’s revenue is estimated to increase 14.2% in 2021. The company’s EPS is expected to rise at a rate of 15% per annum over the next five years.

It’s no surprise that MITK has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. MITK has an A grade for Quality. In the 107-stock Software – Application industry, it is ranked #7.

Click here to see the additional POWR Ratings for MITK (Growth, Value, Stability, Momentum, and Sentiment).

he POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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SIMO shares were trading at $60.26 per share on Monday afternoon, down $1.42 (-2.30%). Year-to-date, SIMO has gained 25.85%, versus a 4.01% 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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