Technology sector stocks continue to lift the broader stock market higher with Facebook, Amazon, and Google reporting really strong second-quarter results. But they’re not alone. A lot of top tech penny stocks are also posting awesome second-quarter results. And these top tech penny stocks also have a lot more short-term upside potential.
Top Tech Penny Stocks
The stock market is on fire, regardless of whether it deserves to be. All three major U.S. stock indexes closed at record levels on Thursday, August 11, 2016. The last time that happened was way back on December 31, 1999—more than 4,000 trading days ago.
The party didn’t last long though. By March, the dot-com bubble burst and all three indexes tanked. By the end of 2000, the Dow Jones Industrial average posted a six percent loss and the S&P 500 was down 10%, while the NASDAQ erased 39% of its value.
But, as we all know, markets go through cycles, and it was just a matter of time until the three indexes rebounded to record levels. The Dow reached a new high in October 2006, the S&P 500 hit a new record in May 2007, and it took the tech-heavy NASDAQ until April 2015 to reach a new high.
And now, all three indexes are running in step and investors couldn’t be more pleased The CBOE Volatility Index (VIX), better known as the “fear index,” is near 11.75; levels not really seen since the lead-up to the 2008 financial crisis.
The VIX measures the implied volatility of S&P 500 index options. If the index rises, it means investors fear a market sell-off or correction. If it’s low, like it is now, investors are complacent and are not at all worried about a stock market correction.
The VIX might be really, really low, but there are also many things that investors should be worried about; the markets are overvalued, we’re knee-deep in an earnings recession (S&P 500 earnings have fallen for consecutive months), and there are growing fears of a global recession.
With stocks overvalued, there is little room for growth. Unless, of course, the company is actually doing really well, and not just appreciating because of market sentiment. But outsized earnings remain elusive for most stocks. As a result, investors need to be careful, because any signs of broad-based fear or a correction will separate the winners from the losers.
One of the rare bright spots right now is the technology sector, with 83% of the sector reporting earnings above estimates. On top of that, 72% of technology sector stocks are reporting revenues above estimates. (Source: “Earnings Insight,” Factset August 12, 2016.)
3 Top Tech Penny Stocks to Watch
Instead of just paying attention to technology sector juggernauts like Facebook, it’s a good idea to look at the top tech penny stocks with strong fundamentals, solid earnings growth, and capital appreciation.
Oclaro, Inc. (NASDAQ:OCLR) is a semiconductor company that designs and manufactures lasers and optical components, modules, and subsystems for optical transport and metro networks, enterprise networks, and data centers.
Oclaro’s solutions are at the heart of the fast optical networks and high-speed interconnects that enable the next wave of streaming video, cloud computing, voice over Internet protocol (VoIP), and other high-speed and bandwidth-intensive applications. (Source: Key Facts, Oclaro, Inc., last accessed August 15, 2016.) Some of Oclaro’s customers include: ADVA, Arista, Cisco, Coriant, Ericsson, Fiberhome, Huawei, Juniper, and Nokia.
Trading near $7.20, Oclaro’s share price is up 115% year-to-date and, after reporting strong fourth quarter and year-end results, shows it still has a lot more room to run.
On August 2, Oclaro announced that revenue for the fourth quarter (which ended on July 2, 2016) increased 52% year-over-year and 23% sequentially to $125.2 million. This represents the fourth consecutive quarter that revenue has increased. (Source: “Oclaro Announces Fourth Quarter and Fiscal Year 2016 Financial Results,” Oclaro, Inc., August 2, 2016.)
Fourth-quarter net income came in at $11.8 million, or $0.11 per share. This compares with a net loss of $13.9 million, or $0.13 per share, in the fourth quarter of fiscal 2015 and earnings of $0.1 million, or break-even per share, in the third quarter of fiscal 2016.
Full-year revenue was up 19.5% at $407.9 million. Net income was $8.6 million, or $0.08 per share compared to a loss in 2015 of $56.7 million, or $0.52 per share.
Oclaro might be a penny stock now, but maybe not for long.
SITO Mobile Ltd
SITO Mobile Ltd (NASDAQ:SITO) connects retailers and brands with consumers. The company operates as a mobile location-based advertising platform that helps brands to increase awareness, loyalty, and sales.
For example, its mobile location-based advertising platform offers geo-fencing that targets customers within a certain radius of location and uses technology to push coupons, ads, and promotions to mobile applications. Clients include Samsung, Coca-Cola, the NBA, Universal, Amazon, Gap, Heineken, and the United States Army. (Source: “Homepage,” SITO Mobile Ltd., last accessed August 15, 2016.)
The company’s share price is up 64% year-to-date and continues to have great momentum.
On August 15, SITO announced that second-quarter revenue advanced 168% to $9.9 million. The company’s mobile advertising revenue increased 285% year-over-year and 71% sequentially to $8.3 million. (Source: “SITO Mobile Reports Second Quarter 2016 Financial Results,” SITO Mobile Ltd., August 15, 2016.)
Second-quarter net income was $725,255 or $0.04 per share. In the second quarter of 2015, SITO reported a net loss of $1.03, or $0.07 per share. “In the Second quarter, we produced early indications of the kind of consistent, solid revenue growth we’re expecting as we work towards becoming a dominant player in location-based mobile advertising,” said Jerry Hug, CEO of SITO Mobile. “On this foundation, we look forward to producing meaningful revenue growth for the balance of 2016 and beyond.”
USA Technologies, Inc.
USA Technologies, Inc. (NASDAQ:USAT) is a leader in secure, unattended cashless transactions for the self-serve retail market in the United States and internationally. The company provides end-to-end electronic payment and machine-to-machine (M2M) services that remotely monitor, control, and report on the results of distributed assets containing its electronic payment solutions. (Source: “Who We Are,” USA Technologies, Inc., last accessed August 15, 2016.)
The company’s share price is up 74% year-to-date; the NASDAQ, on the other hand, is up 7.4%.
If history is any indicator, USA Technologies should be reporting its fourth quarter and year-end financial results in the next few days. Until then, we’ll have to make do with their third quarter results, which the company released back on May 12.
Revenue for the third quarter, which ended on March 31, 2016, increased 33% year-over-year to $20.4 million. During that quarter, the company had 32,000 net connections compared to 14,000 in the same quarter last year. It ended the second quarter with a record 10,825 customers, a 21% increase over the 8,925 a year ago.
USAT reported a quarterly net loss of $5.4 million, or $0.16 per share, compared to a loss of $567,000, or $0.03 per share, in the same prior-year period.
The increased net loss in the third quarter of 2016 included the impact of a one-time $4.8 million non-cash expense, $461,000 of non-recurring expenses relating to the acquisition and integration of the “VendScreen” business, and $105,000 of professional fees incurred in connection with the class-action litigation which was dismissed by the court in April 2016.
Going forward, the company raised its expectations for connections and revenue, and it now expects to add between 93,000 and 95,000 net new connections for the year, bringing total connections to a range of 426,000 to 428,000.
It also expects total revenue to be between $76.0 million and $78.0 million, and to report year-over-year increases of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and non-generally accepted accounting principles (GAAP) net income.