Are Any of These Top-Performing Tech Stocks Still a Buy?
Third-quarter earnings are coming to an end, and the initial assessment is that 60% of companies beat estimates. However, a select few were top-market performers. In the technology sector, these companies include Lattice Semiconductor , CoreLogic , Ultra Clean , Constant Contact , and Brightcove . However, after massive gains, are any of these stocks still a buy?
Third quarter top-performers
First, here is a list of the top-performing technology stocks this earnings season, along with each stock's post-earnings single-day performance .
When you consider the strong post-earnings performances from the likes of Google, the above list might surprise you. However, the above five are the top-performing intraday performers following earnings for the third-quarter. Yet, the question still remains whether any are still a buy.
Expecting continued growth/performance
Lattice Semiconductor designs, develops and markets programmable logic products and related software. The company reported earnings that beat estimates on both the top and bottom lines, with revenue growth of 29% year-over-year .
Lattice achieved record revenue for the second consecutive quarter; this fact is likely why the stock soared to such a large degree. The company also achieved gross margin of more than 50% and saw its operational margin rise for the fourth consecutive quarter.
Assuming Lattice can maintain these improvements, its stock could continue to trade higher. It currently trades at 22 times next year's earnings, which means the market is expecting continued growth, given its premium.
Great industry, but where's the growth?
CoreLogic provides property, financial and consumer information, analytics, and services in the United States and Australia. In its third-quarter, CoreLogic slightly beat revenue estimates with $405.5 million but easily beat EPS estimates by $0.07 with $0.48 .
Over the last year, CoreLogic has benefited from a ramp-up in home prices and volume. The company owns Case-Shiller indexes, which last month reported that 90% of U.S. metros saw housing prices rise in the second quarter, including an overall 10.1% rise in home prices . Then, in September the company reported a 12.5% rise for the month, showing an acceleration of growth .
So, needless to say, CoreLogic has created quite a bit of optimism with its data, and continues to see its own margins increase annually. However, despite its strong industry data, CoreLogic's revenue actually declined 1%. Hence, CoreLogic is in a double-digit growth industry, but lacks growth itself.
Improving on all fronts
Ultra Clean is a rather small developer and supplier of critical subsystems, primarily in the semiconductor capital equipment industry. In its third-quarter, the company beat estimates with revenue growth of 6.3% year-over-year. However, it was Ultra Clean's gross margin growth of 14.8% that really impressed the market.
At 13 times next year's earnings and 0.66 times sales Ultra Clean is cheap, complementing its fundamental improvements. Moreover, this is a company that's increasing its operational cash-flow, reducing its debt-to-assets ratio, and guiding for estimates that far exceed Wall Street's expectations. Hence, it could make a good small-cap investment.
No proof of consistency
It's been a bit of a recovery year in 2013 for the on-demand marketing company Constant Contact. The company had a horrible year in 2012, but has returned to form in 2013, partially because of its third quarter report.
In the quarter, it grew revenue 13% and its EPS increased 45% year-over-year. Both show a positive sign of double-digit revenue growth and increased margins, but keep in mind, this performance is on top of a year where the company saw significant margin declines. With that said, investors must wonder if Constant Contact's performance is sustainable.
The company has made no secret that 70% of its customers are small businesses with fewer than 10 employees , meaning these businesses don't have large marketing budgets and Constant Contact always faces a high turnover rate when businesses fail. At 28 times next year's earnings, the risk of relying on these small businesses for consistent growth doesn't seem worth the reward.
A history of consistent growth
Lastly, Brightcove is a provider of cloud-based solutions for publishing and distributing professional digital media. In its last quarter, Brightcove easily surpassed expectations with revenue growth of 29% year-over-year. Its EPS of $0.04 beat estimates by $0.09 and marked the first time the company reported non-GAAP income from operations .
Brightcove is a small company, unlikely to match the size of high-profile cloud companies such as Salesforce, but has seen five consecutive years of double-digit revenue growth and is well on its way to producing three consecutive years of operating margin improvements.
At four times sales, Brightcove correctly reflects both its growth and its history of consistency. Therefore, investors must determine whether they believe digital media will continue to grow. Personally, I think it will, and that Brightcove is at the forefront of this trend.
Surprisingly, despite the strong post-earnings performance of these five stocks, all remain under-the-radar and relatively unknown to the average retail investor. The reason being that all are small-cap stocks, meaning high-risk and volatile.
With that said, investors are always best suited in seeking companies with a long-term trend of operational excellence, rather than just one quarter. This keeps investors protected. Hence, Ultra Clean and Lattice Semiconductor have to be most attractive to investors.
Both companies are seeing long-term improvements to margins, cash-flow, revenue, and are cheap. Moreover, both stocks have seen additional gains on top of their large intraday post-earnings gains. This signals that more investors are realizing these improvements, and that both could trade even higher.
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The article Are Any of These Top-Performing Tech Stocks Still a Buy? originally appeared on Fool.com.Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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