As savvy investors know, the technology sector is home to some of the highest growth rates in the market today, but it is not always easy finding the right stock at the right price. To make things easier for you, I have scoured the sector and compiled a list of three small caps that are trading at inexpensive forward valuations, so let’s take a closer look at each to determine which would be the best fit for your portfolio.
1. Enghouse Systems Limited
Enghouse Systems Limited (TSX:ESL) is one of the largest developers of enterprise software solutions in Canada.
At today’s levels, its stock trades at 51 times fiscal 2015’s estimated earnings per share of $1.09 and 38.3 times fiscal 2016’s estimated earnings per share of $1.45, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 53.7.
I think Enghouse’s stock could consistently command a fair multiple of at least 50, which would place its shares around $72.50 by the conclusion of fiscal 2016, representing upside of more than 30% from current levels.
In addition, the company pays a quarterly dividend of $0.12 per share, or $0.48 per share annually, giving its stock a 0.9% yield. It is also important to note that it has increased its dividend for eight consecutive years.
2. Evertz Technologies Limited
Evertz Technologies Limited (TSX:ET) is a leading global designer, manufacturer, and marketer of video and audio infrastructure solutions for the television, telecommunications, and new-media industries.
At current levels, its stock trades at 14.8 times fiscal 2016’s estimated earnings per share of $0.99 and 13.1 times fiscal 2017’s estimated earnings per share of $1.12, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 16.8.
I think the company’s stock could consistently command a fair multiple of at least 16, which would place its shares around $18 by the conclusion of fiscal 2017, representing upside of more than 22% from today’s levels.
Additionally, Evertz pays a quarterly dividend of $0.18 per share, or $0.72 per share annually, which gives its stock a 4.9% yield. Investors should also note that it has increased its dividend for eight consecutive years.
3. Avigilon Corp.
Avigilon Corp. (TSX:AVO) is a leading provider of end-to-end surveillance solutions and related technologies.
At today’s levels, its stock trades at 16.9 times fiscal 2015’s estimated earnings per share of $0.74 and 11.7 times fiscal 2016’s estimated earnings per share of $1.07, the latter of which is inexpensive compared with its trailing 12-month price-to-earnings multiple of 15.7.
I think Avigilon’s stock could consistently command a fair multiple of at least 15, which would place its shares upwards of $16 by the conclusion of fiscal 2016, representing upside of more than 28% from current levels.
Investors should note that Avigilon does not currently pay a dividend, but it generates ample operating cash flow each quarter and year, so I think it will initiate one when it is done reinvesting in its business to drive growth.
Should you add one of these small caps to your portfolio?
Enghouse Systems, Evertz Technologies, and Avigilon are three of the most attractive small-cap investment options in the technology sector. Foolish investors should take a closer look and consider beginning to scale in to positions in one of them today.
