3 Tech Stocks Growing Faster Than Google
If you invested in Google right after its IPO you would have realized an over 1,000% return by today. But, investing in Google today will not give you those same returns, but these three stocks just may.
In late October, the NASDAQ Composite rose above its 200 day moving average shortly after technology bellwether Alphabet Inc. (NASDAQ: GOOG), formerly known as Google, released stellar third quarter 2015 financial results that exceeded Wall Street analyst consensus estimates. As a result, the stock rose over 7% on more than double its average daily volume. While the $700 per share technology leader may still be a solid play at current levels, we have uncovered three small cap technology stocks growing faster than Alphabet, Inc.’s projected 18% EPS growth rate that offer even greater upside potential.
Immersion Corp. (NASDAQ: IMMR)
Much like Alphabet (Google), Immersion Corp. recently released 3Q15 financial results that blew away Wall Street estimates. Earnings per share (EPS) for the period were $0.08 versus expectations of break-even operating figures as the company enjoyed record quarterly revenue. On the heels of this outperformance, IMMR is forecast to double its EPS to $0.40 in 2016 from $0.20 in 2015. As exciting as the future financial growth may be, the company’s technology itself is practically futuristic.
With 2,000 patents to its name, Immersion is the leading innovator of a touch technology known as haptics. The company provides touch feedback solutions to create realistic experiences that enable and enhance digital interactions. Immersion’s technology has been adopted via license in more than 3 billion digital devices that include mobile, automotive, gaming, medical, and consumer electronics developed by world-class companies.
One of the fastest growing applications is the use of the technology in devices used in virtual reality gaming such as wearables, gaming controllers, and even smart phones and tablets. With adoption of the technology accelerating, a 25-30% rise in the stock in the coming months is in the cards. This target represents a reasonable 2016E P/E of around 40x, a premium to most growth stocks due to its high EPS growth rate and technology leadership standing.
Mitel Networks Corp. (NASDAQ: MITL)
Canada-based company, Mitel Networks produces communications products for enterprises and mobile carriers around the world. The company’s cloud-based and premise-based unified communications application systems have leadership status abroad in the contact center market. Mitel helps serve more than 2 billion mobile customers and 60 million business users in more than 100 countries every day.
As the company migrates from a hardware-centric entity to a software-centric provider, profit margins are projected to expand dramatically in 2016. That is why consensus Wall Street estimates suggest EPS will rise by over 40% to $0.93 next year from $0.64 this year. Today, the P/E on 2016 EPS is a paltry 8x, reflecting the current business and financial model transition year. However, I believe that as Mitel executes its business model this $1 billion+ in annual sales company will enjoy a multiple similar to other communications product providers. As a result, our target of $12 reflects a conservative 2016 P/E of just over 12x, a solid discount to its expected growth rate next year.
Tower Semiconductor (NASDAQ: TSEM)
ower Semiconductor and its U.S. subsidiary Jazz Semiconductor form one of the largest specialty foundry companies in the world where highly customizable integrated circuits are manufactured on behalf of its 200 customers. The semi industry is forecast to achieve major growth next year as new products slated for introduction require faster processing speeds and functionality. The company’s unique ability to customize products with a short turnaround time is a major factor in its expected 15% top-line growth in 2016 and should jazz up earnings as well.
EPS is expected to reach $2.81 next year, a 34% increase from the projected $2.09 per share estimate in 2015 as revenue could exceed the $1 billion mark for the first time in company history. It should be noted that semiconductor stocks tend to trade in cycles, migrating from in favor to out of favor. When out of favor, such as today, valuations tend to be unusually low relative to the market and when in favor they tend to trade at very lofty valuations. Thus, it is always best to buy these stocks when out of favor but on the verge of achieving an inflection point, such as a turn in earnings due to a secular shift in new product design and introductions. We are exactly at that point today. Therefore, while TSEM currently trades at a ridiculous 4.8x 2016E EPS, this stock could be a double in a year’s time and still trade less than 10x earnings.
And while companies like Apple and Google – or Alphabet as they like to call themselves now – are the names getting the headlines; their days of accelerated growth are pretty much behind them. Don’t get me wrong, they’re great stocks to own, but you shouldn’t expect to find the gains from them today and tomorrow like we saw when they first started out (or in Apple’s case, found new life).
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