What are we looking for?
Overlooked high-performing U.S. tech companies.
The Magnificent Seven dominate headlines with their impressive growth and innovation, but their spotlight often overshadows the rest of the U.S. tech sector. Beyond these giants lies a world of untapped potential – companies that quietly drive niche advancements, pioneer emerging trends and shape future disruptions. Exploring these under-the-radar names could reveal hidden opportunities for savvy investors.
Today, let’s turn our focus to these lesser-known tech performers and uncover their potential.
The screen
We screened U.S. stocks from the information technology sector using the following criteria:
- market capitalization lower than US$1-trillion – to exclude the Magnificent Seven;
- Stockpointer (SP) score greater than 65. The score mainly considers risk-adjusted return on capital (ROC), earnings-per-share growth, free cash flow per share, and risk metrics such as valuation and leverage. The score varies between zero and 100. A score of 65 or more implies an above-average-performing company;
- five-year average ROC greater than 15 per cent;
- growth in net operating profit after tax (NOPAT) over the past two years.
For informational purposes, we have also included each company’s ratio offuture growth value to market capitalization (FGV/MKT CAP), dividend yield and one-year price return.
FGV/MKT CAP is a valuation metric that measures the percentage of a company’s market capitalization that is driven by future growth expectations. A value of 100 per cent is the least favourable, while lower values are more desirable. Although the metric can be negative, a value near zero is typically seen as highly attractive.
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| TICKER | NAME | PRICE ($) | MKT VALUE ($US BIL.) | SP SCORE | 5Y ROC (%) | FGV/MKT VALUE (%) | 2Y NOPAT GRTH (%) | P/E | DIV. YLD. (%) | 1Y PRICE RTN. (%) |
| MSCI-N | MSCI INC. CLASS A | 609.63 | 47.8 | 73.0 | 26.1 | 76.4 | 33.5 | 39.9 | 1.1 | 15.8 |
| SSTK-N | SHUTTERSTOCK, INC. | 31.68 | 1.1 | 71.0 | 16.9 | -26.3 | 26.9 | 30.8 | 3.8 | -28.5 |
| JKHY-Q | JACK HENRY & ASSOCIATES, INC. | 176.18 | 12.9 | 71.0 | 20.4 | 47.5 | 8.3 | 32.2 | 1.3 | 12.9 |
| SMCI-Q | SUPER MICRO COMPUTER, INC. | 32.64 | 19.2 | 71.0 | 25.1 | 40.5 | 283.9 | 15.0 | – | 13.5 |
| PAYX-Q | PAYCHEX, INC. | 146.27 | 52.6 | 69.0 | 18.2 | 67.0 | 12.6 | 31.0 | 2.7 | 20.7 |
| ANET-N | ARISTA NETWORKS, INC. | 405.82 | 127.8 | 69.0 | 22.4 | 82.1 | 100.5 | 47.7 | – | 85.1 |
| FICO-N | FAIR ISAAC CORPORATION | 2375.03 | 57.9 | 68.0 | 26.7 | 91.9 | 42.3 | 114.3 | – | 120.9 |
| UI-N | UBIQUITI INC. | 346.49 | 21.0 | 67.0 | 54.7 | 78.0 | 16.1 | 53.7 | 1.1 | 197.0 |
| FDS-N | FACTSET RESEARCH SYSTEMS INC. | 490.67 | 18.6 | 66.0 | 20.0 | 61.0 | 25.2 | 34.8 | 0.9 | 8.0 |
| MSI-N | MOTOROLA SOLUTIONS, INC. | 499.7 | 83.4 | 65.0 | 16.1 | 67.2 | 24.7 | 53.4 | 0.9 | 56.6 |
| MPWR-Q | MONOLITHIC POWER SYSTEMS, INC. | 567.64 | 27.7 | 65.0 | 22.0 | 89.1 | 0.8 | 63.4 | 0.9 | 2.7 |
| INTU-Q | INTUIT INC. | 641.73 | 179.8 | 65.0 | 17.0 | 78.6 | 68.1 | 61.6 | 0.7 | 11.2 |
| AVGO-Q | BROADCOM INC. | 162.08 | 757.1 | 65.0 | 15.8 | 80.1 | 9.6 | 126.2 | 1.3 | 72.3 |
| NXT-Q | NEXTRACKER INC. CLASS A | 38.16 | 5.5 | 65.0 | 21.8 | 23.8 | 643.8 | 10.0 | – | -4.0 |
| FTNT-Q | FORTINET, INC. | 95.05 | 72.8 | 65.0 | 27.5 | 80.9 | 62.0 | 47.5 | – | 77.3 |
What we found
MSCI Inc. is a leading provider of investment decision support tools, such as indexes, analytics and data. With an FGV/MKT CAP of 76.2 per cent, a significant portion of the company’s market capitalization is based on future growth expectations, highlighting rich valuation on an absolute basis. However, On a relative basis, MSCI ranks at the median of our list of stocks. The company showcases robust performance metrics, highlighted by an SP score of 73, partially driven by two-year growth in NOPAT of 33.5 per cent and a five-year ROC of 26.1 per cent.
Shutterstock Inc., a platform for royalty-free images, videos and music, has experienced significant price volatility this year, with its stock down 28.5 per cent. The company is grappling with challenges posed by the rise of artificial intelligence image generation, which is reshaping the competitive landscape in digital content. The company’s FGV/MKT CAP metric stands at minus 26.3 per cent, reflecting market expectations of negative earnings ahead. Shutterstock boasts the highest dividend yield of our screen.
Jack Henry & Associates Inc. provides technology solutions for the financial services sector. It has an FGV/MKT CAP of 46.8 per cent, signalling moderate growth expectations. The company faced challenges in 2023 due to a crisis among small to medium-sized banks, which primarily impacted its client base. This is reflected in Jack Henry’s two-year NOPAT growth of just 8.3 per cent, the second-lowest on our list. However, with Donald Trump recently elected as U.S. president again, potential deregulation in the coming years could increase activity among the company’s banking clients, offering a path to renewed growth.
Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more details about these stocks, subscribe to the Inovestor for Advisors platform for free.
Anthony Ménard, CFA, is vice-president of data management at Inovestor.
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