The tech sector's disruptive potential lies in software-driven innovations like autonomous AI, immersive spatial computing, and energy-efficient algorithms. These technologies enhance productivity, security, and personalization, shaping future business models while addressing sustainability, ethical concerns, and real-time efficiency across industries.
Against this dynamic backdrop, investors may want to explore promising small-cap tech stocks with disruptive potential, such as FARO Technologies, Inc. (FARO), Kaltura, Inc. (KLTR), and IBEX Limited (IBEX).
Businesses are increasingly investing in AI and IT software to boost operations, streamline processes, and stay competitive. This rising spending is driven by the demand for effective solutions, with companies refining their evaluation and decision-making to avoid costly mistakes and maximize ROI. Global software spending is projected to grow 14% to $1.23 trillion in 2025, up from 11.7% growth in 2024.
Furthermore, small-cap technology stocks offer significant growth potential as they are emerging companies with innovative products. While risks persist, they can provide larger returns if invested early, particularly in fast-growing industries like tech. Considering these favorable trends, let’s analyze the fundamental aspects of the three small-cap tech picks.
FARO Technologies, Inc. (FARO)
Valued at $353.28 million by market cap, FARO designs, develops, manufactures, markets, and supports software-driven three-dimensional measurement, imaging, and realization solutions worldwide.
On October 15, 2024, FARO launched the Focus Premium Max 3D Laser Scanner, extending scanning range to 400 meters and reducing scanning time by up to 50% with Hybrid Reality Capture. The enhanced Focus portfolio simplifies workflows for applications in construction, geospatial, and public safety.
On October 8, 2024, FARO announced the Quantum X FaroArm Series, a portable coordinate measurement machine offering up to 15% higher accuracy and enhanced scanning capabilities for improved manufacturing efficiency. The series includes customizable options and reduces measurement time by up to 40% with the FARO 8-Axis Max rotary worktable.
FARO’s 55.70% trailing-12-month gross profit margin is 9.8% higher than the 50.73% industry average. Moreover, the stock’s 0.71x trailing-12-month asset turnover ratio is 16% higher than the 0.62x industry average.
FARO’s net sales for the fiscal third quarter that ended September 30, 2024, amounted to $82.56 million. The company’s non-GAAP gross profit grew 9.3% year-over-year to $46.36 million. Moreover, its non-GAAP net income stood at $4 million, or $0.21 per share, up 774.2% and 600%, respectively, from the year-ago values.
Analysts expect FARO’s revenue for the quarter ending December 31, 2024, to increase 11.1% year-over-year to 0.40. Its revenue for the quarter ending June 30, 2025, is expected to grow 6.3% year-over-year to $87.28 million. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 49.6% to close the last trading session at $26.46.
FARO’s POWR Ratings reflect its bright prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
FARO has an A grade for Growth and a B for Value, Momentum, Sentiment, and Quality. Within the B-rated Software - Business industry, it is ranked #5 out of 39 stocks. Click here for the additional POWR Ratings of FARO (Stability).
Kaltura, Inc. (KLTR)
Valued at $356.27 million by market cap, KLTR provides various software-as-a-service (SaaS) and platform-as-a-service (PaaS) products and solutions internationally. The company operates through two segments: Enterprise, Education, and Technology (EE&T); and Media and Telecom (M&T).
On December 3, 2024, KLTR announced the beta launch of Work Genie, an AI-powered platform delivering hyper-personalized customer and employee experiences through immersive content creation. Fortune 100 and 500 companies are participating in the beta to enhance onboarding, engagement, and reskilling initiatives.
On November 19, 2024, KLTR announced the launch of "Class Genie," an AI-powered tool for hyper-personalized learning, during its Connect in Education event. Over half of the attending institutions enrolled in the beta program, which customizes educational content based on student needs and institutional data.
In terms of the trailing-12-month levered FCF margin, KLTR’s 17.69% is 55.6% higher than the 11.37% industry average. Likewise, its 65.02% trailing-12-month gross profit margin is 28.2% higher than the 50.73% industry average. In addition, its 0.99x trailing-12-month asset turnover ratio is 61.2% higher than the 0.62x industry average.
KLTR’s total revenue for the third quarter ended September 30, 2024, rose 1.7% year-over-year to $44.30 million. The company reported a non-GAAP gross profit of $29.91 million, up 6.4% year-over-year. For the same period, its net income attributable to common stockholders was $2.15 million, or $0.01 per share, compared to a net loss of $3.23 million, or $0.02 per share, in the prior year.
For the quarter ending March 31, 2025, KLTR’s revenue is expected to grow marginally year-over-year to $44.87 million. Over the past six months, the stock has gained 126.7% to close the last trading session at $2.38.
KLTR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #2 out of 18 stocks in the A-rated Software - SAAS industry. It has an A grade for Sentiment and a B for Growth, Value, Stability, and Quality. Click here to see KLTR’s Momentum rating.
IBEX Limited (IBEX)
Valued at $273.42 million by market cap, IBEX provides end-to-end technology-enabled customer lifecycle experience solutions. The company’s products and services portfolio include offers of customer service, technical support, revenue generation, and other value-added outsourced back-office services.
On October 29, 2024, IBEX announced the launch of Wave iX AI Virtual Agent, an advanced AI solution offering scalable, hyper-personalized customer support through seamless voice and text interactions. It integrates with existing systems to handle routine queries autonomously while ensuring efficient escalation for complex issues.
On October 9, 2024, IBEX announced a strategic partnership with Parloa to integrate Parloa’s GenAI-powered AMP platform into its Wave iX solutions. This collaboration aims to enhance customer engagement with advanced AI and agent-assisted solutions for more personalized and efficient interactions at scale.
In terms of the trailing-12-month Return on Total Capital, IBEX’s 11.52% is 58.6% higher than the 7.26% industry average. Likewise, its 11.02% trailing-12-month Return on Total Assets is 109.8% higher than the 5.25% industry average. Its 1.71x trailing-12-month asset turnover ratio is 117.9% higher than the industry average of 0.78x.
IBEX’s total revenue for the first quarter ended September 30, 2024, increased by 4.1% year-over-year to $129.72 million. Its adjusted EBITDA grew 13.7% from the prior year to $15.59 million. Similarly, the company’s adjusted net income and adjusted EPS rose 19.3% and 28.9% year-over-year, respectively, to $9.03 million and $0.52.
Street expects IBEX’s EPS and revenue for the quarter ending December 31, 2024, to increase 14.8% and 1% year-over-year to $0.51 and $133.96 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 29.3% to close the last trading session at $20.23.
IBEX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Sentiment, and Quality. Within the Software - Application industry, it is ranked #2 out of 127 stocks. Beyond what we stated above, we also have given IBEX grades for Momentum and Stability. Get all the IBEX ratings here.
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FARO shares were trading at $26.52 per share on Wednesday afternoon, up $0.06 (+0.23%). Year-to-date, FARO has gained 17.71%, versus a 28.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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