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What are we looking for?

High-growth technology stocks, with strong fundamentals that have fallen sharply from their share price 52-week high.

The screen

When investors think of technology stocks, they may jump to popular names such as Apple, Microsoft, Amazon, Meta, Netflix and Google. These six names as a group are down an average of 12.8 per cent from their 52-week high stock prices. Widely followed market-capitalization weighted indexes, such as the Nasdaq Composite, have fallen similar amounts – as they tend to heavily weight these larger companies.

These companies only tell part of the story – the average technology stock traded on a U.S. exchange has fallen a staggering 52.4 per cent from its 52-week high stock price. We decided to screen for those companies that are down at least 20 per cent from their 52-week high prices, yet continue to exhibit substantial growth and fundamentals.

To begin our analysis, we used FactSet’s Universal Screening tool to pull all publicly traded technology stocks listed on any U.S. exchange. We then narrowed down our list using these parameters:

· Decline in stock price from 52-week high greater than 20 per cent;

· Annual net income greater than zero in last reported annual period – to indicate profitability;

· Net debt less than zero in last reported quarterly period (not shown), indicating a strong balance sheet (in other words, companies that had more cash and short-term investments than total debt);

· Estimated annual net income, free cash flow, and sales growth greater than 20 per cent, according to sell-side brokers – to indicate substantial projected growth;

Last, we ranked the remaining 12 companies using an equal-weighted average of the following valuation multiples: price-to-earnings; price-to-free cash flow; and price-to-sales.

More about FactSet

FactSet is a leading global financial data and technology company. FactSet’s superior suite of content, analytics and workflow services covers the entire portfolio life cycle and offers actionable insights for asset managers and investment professionals around the world.

What we found

U.S.-listed technology stocks

RankCompanyTickerMkt. Cap. (US$ Mil.)% Off 52W HighNet Inc. (US$ Mil.)Net Inc. Grth. Estim. (%)FCF Grth. Estim. (%)Sales Grth. Estim. (%)P/EP/SP/FCFDiv. Yld. (%)1Y Price Rtn. (%)Recent Close (US$)
1Ichor HoldingsICHR-Q1,386.423.0533.365.639.320.421.50.825.6n/a19.748.80
2Himax Tech.HIMX-Q2,257.227.5747.2846.1203.974.227.01.413.
3Perion NetworkPERI-Q906.437.2710.2248.1185.141.933.21.116.9n/a53.020.76
4Endava PLCDAVA-N7,202.524.9258.439.733.140.3107.110.858.5n/a65.1129.44
5Nvidia Corp.NVDA-Q673,550.022.244,332.0113.386.159.875.319.669.50.1104.1269.42
6Power Integ.POWI-Q5,128.223.1971.2126.6244.743.570.
7AXT Inc.AXTI-Q365.346.093.2396.4106.741.9128.34.1n/an/a-30.98.54
8Monolithic Pwr.MPWR-Q20,197.024.45164.445.635.341.0104.720.481.20.513.5438.18
9Universal Displ.OLED-Q7,742.337.48132.439.240.228.682.025.389.90.5-36.0164.29
11Vicor Corp.VICR-Q4,751.934.1017.9297.0162.724.8225.913.6690.4n/a7.1108.57
12Paycom Sftwre.PAYC-N20,048.040.25143.527.245.124.3183.831.3198.0n/a-19.1333.99

Source: FactSet

Notes: Market data as of Jan. 14. AXT Inc. recorded a negative free cash flow in the last annual period, hence P/FCF marked as n/a.

Twelve companies met our screening criteria. Eight of them (Ichor, Himax, Nvidia, Power Integations, AXT, Monolithic Power Systems, Universal Display and Vicor) are categorized as electronic components and manufacturing, which includes semi-conductor and chip producers. These companies have historically tended to be cyclical, benefiting when the economy is strong and struggling during recessions. While supply chain issues remain a headwind, new and emerging market technologies, such as the rise of electric vehicles and cloud computing, have resulted in continuous demand for chips, hence reducing the cyclicality of these businesses. The long-term growth prospects for these businesses are expected to be robust.

Himax Technologies Inc., a Taiwanese semi-conductor producer, ranked No. 2 on our screen. Himax is notable as it topped our screen in three different categories, including a 2-per-cent dividend yield, forecast annual net income growth of 846.1 per cent, and forecast annual sales growth of 74.2 per cent. The high projected growth in 2022 may be a result of supply chain issues beginning to resolve themselves, as sales growth is expected to normalize in 2023, coming down to 9 per cent (not shown).

Nvidia Corp., the largest semi-conductor manufacturer by market cap in North America, ranked No. 5 on our screen. Nvidia’s strong forecast growth is a result of its involvement with some of the largest growth trends in the market today, including cryptocurrency mining, video-game console manufacturing and cloud computing.

The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.

Full disclosure: The author personally owns shares in Nvidia Corp.

Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division.

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