3 Small Cap Tech Stocks with 50% Upside
Up 24% this year, U.S. small cap stocks as measured by the S&P 600 have doubled the return of their large cap counterparts. Granted, the 1,300% return in popular meme stock Gamestop is part of that. Still, the small cap space is benefitting from expectations of a strong economic recovery and persistent risk-on trading sentiment.
Within the small-cap group, many investors focus on the technology sector. This is where many of the biggest winners have historically come from—and will likely continue to come from.
Here we feature three small-cap tech stocks that Wall Street firms say have at least 50% upside.
Is Cohu a Good Stock to Buy?
Cohu (NASDAQ:COHU) supplies testing and inspection equipment to semiconductor manufacturers and testing subcontractors worldwide. These days chipmakers are struggling to keep up with demand. The industry is reeling from the effects of the pandemic including unprecedented demand for laptops, phones, and other remote work and learning devices, in addition to lingering supply chain constraints.
What does the global supply shortage mean for a company like Cohu? According to sell-side analysts, it means their products are likely to be in high demand for some time as the industry works through undersupply conditions. Seven analysts call Cohu a 'buy' and one a 'hold'. Among those that have refreshed their opinion in the last three months, the average target price is $60 which represents 64% upside from present levels.
That upside is expected to be driven by Cohu's growing presence in the $6.5 billion semiconductor and printed circuit board (PCB) market. From 2016 to 2020, the company's revenue grew at a 19% annualized rate while its installed equipment base grew to over 28,000. As growth themes like 5G networking, autonomous driving, and industrial automation play out, Cohu is well positioned to come along for the ride.
Hedge funds have also taken a liking to Cohu. In the first quarter of this year, three hedge fund managers initiated a position in the stock. A fourth, Chuck Royce of Royce & Associates added to an existing position to bring his portfolio's position to $41.3 million. Together, hedge fund investors have doubled their stake in Cohu since the fourth quarter of 2020.
What is a Good Restaurant Reopening Play?
PAR Technology (NYSE:PAR) offers hardware and software solutions that help restaurant operators and other hospitality groups manage money, employees, and customers. From large, global quick service restaurant (QSR) chains to small independent restaurants, the company's products are installed in nearly 100,000 locations across more than 100 countries. PAR Technology also provides IT services to the U.S. Department of Defense and various federal government agencies.
The Street is overwhelmingly bullish on PAR Technology stock. Price targets offered over the last three months average $101.75 which comes out to 55% upside. Last month BTIG reiterated its 'buy' rating and gave the stock a Street-high $110 target.
The enthusiasm towards the company makes sense. Once known for inventing the first point-of-service (POS) register for QSRs, PAR Technology has evolved into a fast-growing provider of cloud-based SaaS software for the entre restaurant industry. Last year software and service revenue accounted for 47% of all revenue. Going forward, recurring SaaS revenue is expected to become a bigger part of the business. This is an attribute tech investors appreciate.
PAR Technology's exposure to the global restaurant industry makes it a unique reopening play that doesn't require a wager on any one restaurant. As customers make their way back to their favorite dining spots, demand for the company's POS terminals and software should be on the rise. That's just par for the course.
Does ON24 Stock Have More Room to Run?
ON24 (NYSE:ONTF) offers a cloud-based digital experience platform that helps clients capture and act on real-time data that converts prospects to customers. Its customers include banks, healthcare organizations, manufacturing companies, and fellow technology companies. The AI-based system includes technology for interactive webinars, virtual events, and "always-on" multimedia.
This week the company put out an internal report that showed the use of webinars is on the rise. In a study of more than 100,000 digital experiences offered by 2,000-plus organizations across several industries, webinar usage increased 162% and attendance nearly quadrupled to over 60 million people. This is because more and more businesses are moving towards digital marketing channels to match where their prospects are heading. It is good news for ON24 given the importance of webinar technology to its business.
The news helped spark a rally in ON24 on Thursday, a much needed turnaround for a stock that has slumped since its February 2021 IPO. Despite the slide, analysts haven't given up on the company. It's fair to say they consider the downturn a glorious buy opportunity.
All eight sell-side firms covering ON24 have a 'buy' rating and most have chimed in since the company's first quarter report three weeks ago. The convincing top and bottom-line beat was followed a week later by news that the ON24 is expanding into Japan.
Of the five analysts that have provided an updated opinion since the Q1 report, the average target price is $62 which represents more than 70% upside. A good reason for investors to keep ON24 on the 24-7 watch list.
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