The share price of Solid State (LSE: SOLI) is weak today on the release of its full-year results report. However, I think the tech stock looks like a decent long-term hold for my diversified portfolio.
The business trades as a specialist value-added component supplier and design-in manufacturer of computing, power, and communications products. Many of the products are for use in specialist and harsh environments. And the news feed for the past couple of years contains regular contract-win announcements, which I see as encouraging.
Why I think Solid State is a tech stock for me to buy
Today’s report for the full-year to 31 March, shows decent progress. Adjusted earnings per share moved 18% higher than a year earlier. The order book was up almost 35% at the end of the trading year. And the directors signalled their confidence in the outlook by raising the total shareholder dividend for the year by 28%.
Solid State executed two bolt-on acquisitions during the period with the aim of further fuelling growth. Willow Technologies and Active Silicon will help “enhance” the international sales capabilities of the company in the USA and in Europe, it noted.
The outlook’s positive and chief executive Gary Marsh said he has “confidence” in the company’s mid-term prospects. Meanwhile, City analysts have pencilled in a mid-single-digit percentage advance in earnings for the current trading year.
Of course, analysts’ assumptions can prove to be wrong. And it’s possible that the shares may fall in price if they revise down those forward-looking estimates later. However, I’d embrace the risks because the balance sheet looks strong and the business is trading well with the directors focused on a growth agenda.
Meanwhile, with the share price near 933p, the forward-looking earnings multiple for the current year is around 17. That’s a full valuation given the immediate prospects for growth in earnings. And it could add to the risk of holding the shares. However, the business has some decent-looking quality indicators and I reckon they help to justify a higher rating.
Strong cash generation
But Solid State isn’t the only tech stock I’m keen on right now. Construction software specialist Eleco (LSE: ELCO) released a positive first-quarter trading statement on 31 March. Revenue had increased by 9% year-on-year. And profit before tax had risen by 21%.
I like the strength of the balance sheet. And net cash came in at just under £8m compared to a little over £6m on 31 December 2020. The directors explained “strong” cash generation in the period drove the improvement.
Executive chairman Serena Lang said the business has seen a good start to the new trading year and the outlook’s positive. Meanwhile, City analysts expect earnings to advance by around 25% in 2021, followed by a further uplift near 10% the following year.
Against those expectations, and with the share price near 134p, the forward-looking earnings multiple is just above 26p. That’s not a cheap valuation. However, the quality indicators are good. And, for me, that works with the strong balance sheet to help justify the stock’s price tag. Nevertheless, the investment could lose money if the company misses its earnings estimates causing the share price to fall.
Nonetheless, I’m tempted to add the stock to my portfolio.
