Investors aren't going to find too many small companies with PCTEL's (Nasdaq:PCTI) record of returning cash to shareholders. In addition to paying a special dividend a few years ago, the share count here has declined about 20% since 2007. All of this has been achieved despite a clear breakout product and the fact that revenue for 2011 was more than 10% below the level back in 2006.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Unfortunately, value-oriented tech companies seldom get their due. While PCTEL has a decent business in antennas and mobile network test equipment, it's going to take more than that to make the shares really exciting. Luckily for investors, there is an iron in the fire that just might make this a more interesting name in the future.

Sluggish Results Par for the Course
PCTEL is not well-followed, but the company has been doing relatively well when compared with expectations. That said, growth is not exactly superb. Revenue rose 8% in the fourth quarter (reported in late February) and though the company did alright, again relative to expectations, guidance from management calls for pretty flat performance on a sequential basis.

Will Chinese Delays Derail the Story?
PCTEL has been trying to grow its international business, in part by focusing on products like scanning receivers for the Chinese TD-LTE market. Unfortunately, Chinese officials seem to be dragging their feet on the migration to 4G and that could hurt growth expectations. On the other hand, PCTEL already has some business with China Mobile (NYSE:CHL) and equipment OEMs like Huawei and Alcatel-Lucent (NYSE:ALU), and there is certainly ongoing demand for TD-LTE equipment for older generations.

Will a Hack-Proof Phone Secure the Future?
One of the most interesting projects going on at PCTEL is a venture developing what is called ProsettaCore - technology aimed at securing mobile devices from hacking attempts. This security approach uses multiple defenses (including encryption) and runs between the operating system, applications and physical resources, to secure it both from active hacking and passive eavesdropping.

From the sounds of it, this is military/government-spec technology and the government is likely to be the initial target customer. While the government has not always been accommodating when it comes to permitting civilian uses of secure technology, it doesn't seem unreasonable to think that there could be eventual commercial applications for it.

If this really works, it would seem unlikely that PCTEL will enjoy that success for long as a public company. Harris (NYSE:HRS), Motorola Solutions (NYSE:MSI) and General Electric (NYSE:GE), all current PCTEL customers to begin with, would certainly have use for that sort of technology in their existing businesses, to say nothing of other defense electronics contractors.

Steady, Albeit not Spectacular, Otherwise
PCTEL has a decent business, as is, in antennas and test equipment. The company's share in scanning receivers is probably in the 30 to 40% range and already boasts customers like Verizon (NYSE:VZ) and AT&T (NYSE:T), while the aforementioned China opportunity could add a little growth.

The antenna business is also a stable growth opportunity. Out of an addressable market of maybe $400 million to $600 million, PCTEL seems to have about 10% share, with antennas for mobile land radios, WiFi/WiMAX, GPS and so on. While there is an interesting opportunity in providing antennas to allow companies to use unlicensed spectrum (via 802.11/WiFi) to offload data traffic, it's arguably not a transformative opportunity for the company.

The Bottom Line
With nearly $62 million in cash and investments on the balance sheet, it's pretty clear that Wall Street does not assign a huge value to PCTEL's business or growth prospects. To a point, this is fair - management has done a good job of maximizing the value of its assets, but growth has been decidedly lacking for quite some time.

PCTEL produces less cash than it used to, but still enough that a private equity takeout could offer some floor to the stock. Odds are, though, that PCTEL Secure and ProsettaCore really needs to work out for the stock to be a real success.

As it is, PCTEL is a stock with relatively modest downside and interesting upside - a situation where "dead money" may in fact be the biggest risk to investors. Single-digit cash flow growth can power a price target in the $9s, so this may be a stock to consider for investors who like over-looked and under-followed ideas. (For related reading, see 10 Tips To Clear Your Portfolio's Dead Weight.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center