ShotSpotter
All eyes have been on the technology sector in 2018, after some of the biggest companies have struggled to make headway.
The most obvious is Facebook Inc. FB, -1.29% which is down almost 7% this year, owing to concerns about users’ privacy on the platform and high-profile Congressional hearings about the social-media platform’s business practices.
There’s also Google parent Alphabet Inc. GOOG, +1.76% GOOGL, +1.69% down 15% from its 52-week high in January, and Apple Inc. AAPL, +1.22% which has basically gone nowhere since December.
You would be forgiven if you have only paid attention to those big name stocks lately, since they seem to be dominating the headlines.
However, investors shouldn’t make the mistake of thinking that large-cap tech stocks are the only way to play the profit potential of this sector.
I have my eye on five smaller tech companies that seem to have a lot to offer, and could be worth a look given their durable growth in a challenging stock market environment.
Read: Small stocks, seen safe from global uncertainty, are among market’s leaders
ShotSpotter
Don’t know of ShotSpotter SSTI, +2.40% ? You may be hearing a lot more about this fast-growing company, and perhaps not for pleasant reasons. After all, ShotSpotter is a high-tech “gunfire detection and location technology” tool that uses surveillance infrastructure to give gunfire alerts to local law enforcement. It’s deployed in over 70 communities, including major municipalities from Los Angeles County to Newark, N.J., as well as smaller Midwestern markets like Gary, Ind., and Omaha, Neb.
I won’t moralize over the causes of gun violence in America. But as an investor, it is important to not see the big picture trends lifting this company. Revenue growth is projected to run at 35% this year and another 35% or more in fiscal 2019. And while ShotSpotter is not yet profitable, it is rapidly approaching break-even and could be posting positive earnings within 12 months.
Admittedly, ShotSpotter is a new company to Wall Street. But shares opened at $12.20 after a June 2017 IPO, and have already raced up to above $30. That kind of momentum in a market that seems to be struggling is worthy of attention.
Read: How to find ‘coming of age’ companies whose stocks could rise 10-fold
R1 RCM
Another stock that you likely haven’t heard of is R1 RCM RCM, +2.77% a software and services firm that focuses on “revenue cycle management” for health-care companies.
While that buzzphrase may not get your blood pumping, it is an important concept surrounding medical-billing processes. Hospitals and doctors simply have to get it right in order to navigate the inefficiencies and complexities of the American health-care system, and R1 RCM helps them do that.
One good example is software that allows for pre-registration services such as financial clearance and insurance approval before patients step foot in the facility, so everyone knows if there are any co-pays and can estimate just how much the visit may cost.
The less time and money a health-care provider wastes on billing minutiae, the more patients they can serve. That has put R1 RCM in high demand, and is fueling a projected 90% increase in revenue for fiscal 2018. The company is still plowing its cash into growth, but says that by next year it will turn a consistent quarterly profit and book over $1 billion in sales.
Shares are up roughly 120% in the past 12 months on brisk growth and big optimism. And unless you expect American health care to get considerably less confusing in the next few years, you can bank on continued growth in the future for RCM stock.
Casa Systems
From the demands of streaming video to constantly connected businesses, the world is heavily reliant on data. But the surge in demand and the general notion that we can be wired everywhere have created big problems for networks and service providers.
Enter Casa Systems CASA, +3.80% a stock that has roughly doubled since its December 2017 IPO priced at $13 a share. The company specializes in helping operators around the world better serve their data customers, from U.S. companies like Charter Communications CHTR, -0.28% to England’s Liberty Global PLC LBTYK, -0.30%
Admittedly, Casa hasn’t been on public markets for very long. And furthermore, in its IPO filings it listed a big reliance on a few clients, including about a third of its business coming from Charter. But the company is investing big in other areas, including wireless network systems, and is already comfortably profitable as it chases this growth.
The fundamentals hint that Casa is on to something, with 11% revenue growth projected this year that will accelerate to 19% growth in fiscal 2019. And big-picture, demands for data only getting larger so it is difficult to believe Casa stock doesn’t have a lot more runway in the years to come.
Twilio
Cloud-communications provider Twilio Inc. TWLO, +1.49% doesn’t have as straightforward of a success story as some of the other names on this list. After a big run-up after its 2016 IPO, shares cratered from the mid-$60s to under $25 earlier this year.
But they’re on the mend, taking off after a big earnings report in mid-February sparked a 5% gain in a single day. The company posted a smaller loss and higher top-line growth. That squeezed out the short-sellers over a few weeks, but bullish sentiment picked up the momentum and has led to a big 50% run since those early 2018 lows.
That’s, in part, owing to new products including its Flex contact center, which builds upon its already attractive suite of products that facilitate text messaging and voice calls. These kinds of communications tools are crucial to any business that wants to provide great customer service. While Twilio certainly has some competition out there, its products are used by big brands from Netflix NFLX, +1.94% to Nordstrom JWN, -0.78% to Lyft, and there is certainly a large enough addressable market for Twilio stock to carve out a profitable niche.
Admittedly, it’s risky to read too much into one report, given Twilio’s history of big moves both ways after recent quarterly reports. In fact, an ugly report last May erased 25% in share value in short order. However, soft year-over-year comparisons and better sentiment should provide a good floor. And new product launches in 2018 should give investors reason to be optimistic.
Besides, Twilio is up 36% in the past year, so this isn’t just about a big move in the past two months. Shares have been slowly stabilizing and looking to move higher, and it seems like they are finally doing so in 2018.
Momo
Not all the fast-growing tech opportunities are in Silicon Valley — or even in the U.S. Chinese location-based messaging service Momo Inc. MOMO, -3.53% proves that.
The urbanization of China is one of those megatrends that all investors should have a lot of cash behind. It is a megatrend that simply cannot be undone. And given the massive profit potential, why would you want to anyway? Momo is tailor made for this phenomenon, with an app that is similar to Tinder in that it allows smartphone users to interact with friends but also chat with nearby strangers.
What really makes Momo worth a look, however, is that it’s not just a geolocation play. It also is one of the biggest players in video live-streaming. This one-two punch of high impact tech trends tied together with a wired and urban Chinese consumer base makes Momo stock a no-brainer investment.
That’s not just a narrative. Revenue will surge 37% this year and earnings will jump 29%, followed by increases of 25% and 24%, respectively, next year.
This combination of growth owing to durable demographic and consumer tech trends is the stuff that investors should be salivating over, because it allows for success regardless of broader market sentiment or short-term economic trends.
That’s evidenced by the 17% increase in Momo’s stock this year despite challenges on Wall Street and talks of a trade war with China.