Investing in small-cap plays (and smaller) is enticing for investors on account of their potential for high returns. Of course, gambling on small stocks means taking the risk that the investment will go belly up. While that random start-up could become the next
But while companies like
While we can't ever predict such a thing with certainty, we can screen for companies that are projected to grow, but still have a history and cash reserve to protect against any potential mishaps. That is, even if the tech stock doesn't blow up, the chances of it going under are far less severe.
To find small tech stocks with both a potential for growth we went looking for tech plays that satisfied the following requirements:
1) The company is worth less than
While some tech plays larger than this are capable of massive returns - see
2) Current Ratio over 1.
This means the company possesses the ability to poay their immediate liabilities. This mean sthe company is not overleveraged.
3) Gross Margin over 50 percent.
This means the company is actually making a decent amount of money relative to their expenses, and that their business model is already profitable.
4) Return on Equity over 15 percent.
A solid return on equity means the company is generating profit in a nice percentage to shareholder investment.
5) Sales growth quarter over quarter of more than 25 percent.
The kicker. High sales growth means exactly what it sounds like it does: the company is selling more and more of their product. At the core of every growth stock is growing sales, and growth over 25 percent is quite impressive.
After applying this criteria, we found seven tech plays that are both growing while generating enough cash to (hopefully) keep them from sinking: