4 Tech Small Caps to Buy After the Pullback

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Small caps have been in for a volatile ride the past month or so. During the period, the Russell 2000 has shed about 4%, while the S&P 500 has stayed mostly flat.

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But the damage has been even worse for small-cap tech stocks. For example, during the past month, the PowerShares S&P SmallCap Information Technology Portfolio ETF (PSCT) has lost nearly 5%. And the Nasdaq isn’t far behind, falling more than 3%.

In light of this, might there be some attractive tech small caps worth considering now that they’ve hit lower prices? I think so. Here’s a look at four tech small caps to buy:

Small Caps Pick #1 — Synchronoss Technologies (NASDAQ:SNCR)

small-caps-tech-stocksBack in 2000, Steve Waldis founded Synchronoss Technologies (NASDAQ:SNCR) because he believed mobile would eventually become a mega business. He knew the company would need strong infrastructure systems to make this happen, which became the focus of SNCR.

But the journey wasn’t easy, as Waldis had to deal with the telecom implosion. He plugged away, though, and eventually snagged a deal with AT&T (NYSE:T) to manage its activations of Apple’s (NASDAQ:AAPL) iPhone. It was certainly a game change.

And SNCR looks poised for even bigger opportunities. Consider that the company is leveraging its carrier-grade infrastructure to move into new categories. Here are some of the efforts:

  • Integrated Life: This provides a seamless Internet network across new places, such as cars.
  • Personal Cloud: This is storage for consumers, which has reached 10 million subscribers insix months
  • Synchronoss WorkSpace: A file-sharing service for businesses.

All of these have certainly been drivers for top-line growth. In the latest quarter, revenues jumped by 32% to $97.6 million, and earnings came to $25.1 million. Yet the Cloud Services division saw revenues spike of 75% to $39.4 million. In term of tech small caps with big potential, SNCR is at the top of the list.

Small Caps Pick #2 — Rally Software (NYSE:RALY)

small-caps-tech-stocksThe cloud segment has been one of the hardest hit for the small caps. Just look at Rally Software (NYSE:RALY). The company went public about a year ago at $14 and quickly ran up to about $33.  However, RALY stock has since plunged to a lowly $13.81 — below its IPO price.

Despite that plunge, RALY stock still looks like a compelling play in the small caps universe. The company has built a platform that allows companies to use Agile Software development, which is an approach that allows for faster computer coding. The technology helps with planning, collaboration, the automation of processes, scheduling and testing. However, RALY does face some major competitors like IBM (NYSE:IBM) and Hewlett-Packard (NYSE:HPQ).

Growth is expected to remain solid. For fiscal 2015, RALY projects revenues to grow 23% to 26%. The company has more than 214,000 paid users and more than 1,100 customers, such as Whole Foods (NASDAQ:WFM), Western Union (NYSE:WU) and The Financial Times.

Small Caps Pick #3 — Proofpoint (NADAQ:PFPT)

small-caps-tech-stocksThis is another cloud operator that has felt the pain of the drop in the small caps sector. Since early March, Proofpoint (NASDAQ:PFPT) is off more than 30%.

But the fact remains that the company is a top-notch player in the security space. The PFPT system is fairly comprehensive, helping with threat protection, regulatory compliance, archiving and governance, and secure communication. By being in the cloud, it also benefits from Big Data analytics and machine learning.

From 2009 to 2013, revenues increased from $48.5 to $137.9 million. In all, there are about 3,100 customers, 38 of which are from the Fortune 100. PFPT also has key partnerships with IBM and Microsoft (NASDAQ:MSFT).

In light of the data breaches at mega corporations like Target (NYSE:TGT), online security remains a high priority for companies. In other words, it’s a pretty good bet that the market will continue to grow at a healthy pace.

Small Caps Pick #4 — Everyday Health (NYSE:EVDY)

small-caps-tech-stocksThis is a recent IPO, having pulled off its deal in late March. But of course, it came under pressure from the selloff in small caps. Everyday Health (NYSE:EVDY) is close to its initial offering price of $14.

The company operates a variety of health-oriented web sites and mobile apps. Last year, it attracted an average of 43 million consumers and 500,000 healthcare professionals.

A key to the strategy has been to use well-known brands. Some include Mayo Clinic, Jillian Michaels, The South Beach Diet and Dr. Sanjay Gupta. At the same time, mobile has been another driver. Consider that EVDY has 26 mobile apps that have been downloaded more than 15 million times.

No doubt, growth has been strong. From 2011 to 2013, revenues grew from $125.8 million to $155.9 million. The company has also been generating positive adjusted EBITDA. Last year, it came to about $21.7 million.

Right now, the valuation on EVDY stock looks attractive. It is at 2.7 times revenues, which compares to a 3.7X multiple for rival WebMD Health (NASDAQ:WBMD). So if you’re looking for small caps to buy, you could do a lot worse than EVDY stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/04/tech-small-caps-to-buy/.

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