The Stocks Making a Comeback in the Last Two Earnings Seasons
Wednesday, February 20th, 2013
By Mitchell Clark, B.Comm. for Profit Confidential
What has been very encouraging over the last two earnings seasons is the strength we’re getting in small-cap technology companies (stock market action aside). A lot of smaller technology companies are reporting a significant improvement in revenues, and that means that consumers are opening up their wallets, if only just a little.
I’m not a fan of large-cap, retail technology stocks as stock market investments. Sure, Apple Inc. (NASDAQ/AAPL) is a great company, and I like their computers, but the company just priced itself out of its own market. Apple is now struggling to grow. Dell Inc. (NASDAQ/DELL) did the same thing. It priced itself out of its own market (the other way around); and while it once was a great investment on the stock market, it’s been terrible for the last dozen years.
What we’re getting now are countless smaller names in enterprise technology saying that their revenues are growing, which is more important than earnings growth. This is exactly what the economy needs. Big-cap companies will continue to have to deal with weakness from global operations; but domestic small-cap tech stocks are like a breath of fresh air, and the stock market is beginning to notice.
Take a look at Qlik Technologies Inc. (NASDAQ/QLIK). This is the second growing company I recently found out of Radnor, PA. (See “Great Old Economy Business That Isn’t Full of Hot Air.”) Qlik makes business intelligence software, which is used by corporate and government customers to share data. This is a growing company, but the position slowed on the stock market last spring, after a very strong start in 2010. Qlik’s stock market chart is below:
Stock chart courtesy of www.StockCharts.com
I think this small, but growing enterprise tech company has a lot of potential going forward. Its fourth-quarter revenues grew 27% to $137.5 million. In today’s economy, that’s solid. Earnings fell a little bit to $13.3 million, down from earnings of $15.6 million in the comparable fourth quarter, but that doesn’t bother me. In this stock market, we need to see top-line growth, and all of Qlik’s metrics, including license, maintenance, and services revenues, produced.
The company beat the Street with its 2012 fourth-quarter revenues and earnings. It guided first-quarter earnings slightly below consensus, but upped its total 2013 revenues outlook above current expectations.
I haven’t conducted a scientific study on the data yet, but my read is that business conditions are improving quite well for smaller, domestic technology companies.
- Since the beginning of July through to Friday, the small-cap Russell 2000 Index has tumbled 8%.
Historically, the Russell 2000 has led the general market lower.
THE BUBBLE HAS STARTED TO BURST
A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.
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The stock market is still in a bit of a daze right now after such a strong January. The collective uncertainty is very apparent in the trading action, and earnings are still coming in. Where the stock market goes is up to the Dow Jones Transportation Index, but I suspect we’ll get a little more upside followed by a retreat.
So, to sum up: revenues in small-cap, enterprise tech companies are improving. Earnings, or a lack thereof, aren’t as important in this kind of market. The strength started in the third quarter of 2012 should have staying power. It’s a good sign for the U.S. economy and employment in the field of information technology (IT). I like what Qlik is accomplishing.
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