The tech stocks are some of the worst performers so far this year, as the record-high inflation, geopolitical tensions, and the Fed’s aggressive stance have taken a toll on the technology sector. The Nasdaq Composite index has declined more than 30% year-to-date.
However, the growing tech dependency and the adoption of new and advanced technologies, including 5G, cloud computing, artificial intelligence (AI), and the Internet of things (IoT), provide a solid base for the tech stocks to rebound in the upcoming months. The technology market revenue is expected to reach $1.57 trillion by 2027, growing at a 7.1% CAGR.
Given this backdrop, we think it could be profitable to invest in quality micro-cap technology companies Wayside Technology Group, Inc. (WSTG), AstroNova, Inc. (ALOT), Computer Task Group, Incorporated (CTG), and Information Services Group, Inc. (III). These stocks have a ‘Strong Buy’ rating in our proprietary POWR Ratings system.
Wayside Technology Group, Inc. (WSTG)
WSTG is a value-added information technology (IT) distribution and solutions company. It markets its products through its website, local and online seminars, events, social media platforms, emails, and printed materials. It has a market capitalization of $ 145.58 million.
On June 8, WSTG’s subsidiary, Climb Channel Solutions, partnered with Hammerspace to provide a hybrid cloud data platform addressing decentralized business needs. This partnership might allow Climb Solutions to scale business operations from anywhere and enhance its proficiency.
On May 24, Climb Channel Solutions, a wholly-owned subsidiary of WSTG, partnered with Trilio, a leading provider of cloud-native data protection, to bring scalable Kubernetes backup, DR, and management tools to cloud environments of organizations. This partnership might enable Climb to build and scale resilient cloud and container environments.
During the fiscal 2022 first quarter (ended March 31, 2022), WSTG’s net sales increased 13.5% year-over-year to $71.32 million. Its gross profit rose 10.5% from the year-ago value to $11.98 million. Its adjusted EBITDA improved 60.5% year-over-year to $4.25 million. Net income grew 78.4% from the same period last year to $2.71 million, while its income per common share came in at $0.61, representing a 74.3% increase year-over-year.
Analysts expect WSTG’s EPS to improve at a 22% CAGR over the next five years. Shares of WSTG rose 20.7% over the past year to close Friday’s trading session at $32.63.
WSTG’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. It has a B grade for Growth, Sentiment, and Quality. Also, it is ranked #1 of 48 stocks in the Technology – Electronics industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the WSTG ratings for Value, Momentum, and Stability here.
AstroNova, Inc. (ALOT)
ALOT manufactures and distributes a range of specialty printers and data acquisition and analysis systems. The company operates through two segments: Product Identification; and Test & Measurement. ALOT has a market capitalization of $95.12 million.
In the fiscal 2023 first quarter (ended April 30, 2022), ALOT’s net revenue increased 6.6% year-over-year to $31.01 million. Its operating income rose 3.9% from the year-ago value to $764,000.
The consensus revenue estimate of $125.03 million for fiscal 2023 represents a 6.4% increase from the same period last year. Shares of ALOT have declined marginally over the past month, closing the previous trading session at $13.
ALOT’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. It has an A grade for Value and Sentiment and a B for Momentum and Quality. Also, it is ranked #1 of 49 stocks in the Technology - Hardware industry. To see additional POWR Ratings for Growth and Stability for ALOT, click here.
Computer Task Group, Incorporated (CTG)
With a $142.15 million market cap, CTG offers information and technology services. It operates through three segments: North America IT Solutions and Services; Europe IT Solutions and Services; and Non-Strategic Technology Services. The company offers business process transformation solutions, technology transformation solutions, and operations transformation solutions.
On March 1, CTG partnered with VCU Health System to support their system-wide epic deployment. This reflects the growing demand for CTG's services and the company's vast market reach.
CTG’s adjusted EBITDA increased 16.3% year-over-year to $4.33 million in the first quarter ended April 1, 2022. The company’s non-GAAP operating income increased 26.2% from the year-ago value to $3.46 million, while its non-GAAP net income grew 21.6% year-over-year to $2.44 million. CTG’s non-GAAP EPS rose 23.1% from the prior-year quarter to $0.16.
For the fiscal second quarter (ending June 2022), CTG’s revenue is expected to increase marginally year-over-year to $92.50 million. Its EPS is expected to increase 30.8% to $0.17 in the ongoing quarter.
CTG has gained 10.4% over the past month to close Friday’s trading session at $9.22.
CTG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. CTG also has an A grade for Value and a B for Stability, Sentiment, and Quality. The stock is ranked #3 of 81 in the Technology - Services industry. Click here to see the ratings of CTG for Growth and Momentum.
Information Services Group, Inc. (III)
III is a leading technology research and advisory company. The company specializes in digital transformation services, including sourcing advisory, managed governance and risk services, network carrier services, technology strategy and operations design, change management, market intelligence, and technology research and analysis. It has a market capitalization of $277.15 million.
On June 9, III expanded its partnership with Enate to provide Enate’s process orchestration platform solution to clients in the United States. Such expansion is expected to increase its customer base and boost revenues.
In the same month, the company launched a digital engineering business to meet the booming demand for data- and software-driven business models. The new introduction might aid global enterprises in digitizing products and creating enhanced customer experiences.
On May 9, the company’s Board of Directors increased the quarterly dividend by 33% from the previous quarter to $0.04 per share, payable on June 17, 2022. This reflects the company’s strong financial performance.
During the fiscal first quarter (ended March 31, 2022), III’s revenues increased 9% year-over-year to $72.56 million. Its operating income rose 54.2% from the year-ago value to $7.73 million. Its adjusted net income grew 16.8% from the same period last year to $6.38 million, while its adjusted EPS came in at $0.12, representing a 20% increase year-over-year.
Analysts expect III’s revenues to increase 4.1% year-over-year to $73.90 million in the fiscal second quarter (ending June 2022). Its EPS is expected to grow at a 16% CAGR over the next five years. The company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 4% to close the last trading session at $5.76.
The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. It is no surprise that III has an A grade for Sentiment and a B for Value and Quality. In the same industry, it is ranked #1 of 81 stocks.
Beyond what we’ve stated above, we have also given III grades for Growth, Stability, and Momentum. Get all the III ratings here.
WSTG shares were unchanged in after-hours trading Monday. Year-to-date, WSTG has declined -5.80%, versus a -20.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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