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Trying to find a decent company with a share price of under $10 is hard. However it is not impossible. One of the best places to start is the firm's free cash flow. The free cash flow will allow the company to grow quickly and return cash to shareholders, without having to raise debt, or issue new shares. The best place to start is the gross margin, then compare this with the net margin. This tells investors how efficient the firm is. A larger gap between gross and net margins means a less efficient company.

So after screening for stocks under $10 with decent gross and net margins these are the results.

1. Giant Interactive Group, Inc. (NYSE:GA)

Market cap. - $ 1.27 Billion

Price - $5.35

Giant Interactive Group Inc. develops and operates online games in the People's Republic of China. It primarily offers multiplayer online role playing games (MMORPGs). The company operates 11 games, including 9 MMORPGs, one casual massively multiplayer online game, and one strategy browser game. The company also licenses its games in various other countries. The company markets and sells prepaid game cards through retail outlets. Giant Interactive Group Inc. was founded in 2004 and is based in Shanghai, the People's Republic of China.

Gross Margin - 86%

Net Margin - 49%

Net Operating Cash Flow as a % of Revenue - 71%

P/E

Forward P/E

Yield

EPS growth this year

EPS growth next year

7

6.06

5.57%

9.38%

11.25%

The company with the largest market cap in the group - Giant Interactive has a solid gross margin and a good net margin, resulting in a very large free cash flow to return to investors, (5.5% yield). The company is currently on a forward P/E of 6 and expected to generate double-digit earnings growth next year. I believe it is worth significantly more.

2. Noah Holdings Limited. (NYSE:NOAH)

Market cap. - $296 Million

Price - $5.35

Noah Holdings Limited, through its subsidiaries and variable interest entity, engages in the distribution of OTC wealth management products to the high net worth population in China. It markets products supplied by third-party product providers, based on the underlying assets class, such as fixed income products, other products that provide investors with fixed rates of return. The company also offers proprietary wealth management products, such as private equity fund of funds, including financial planning. It serves high net worth individuals, enterprises affiliated with high net worth individuals and wholesale clients, primarily local commercial banks or branches of national commercial banks that distribute wealth management products to their own clients.

Gross Margin - 79%

Net Margin - 33%

Net Operating Cash Flow as a % of Revenue - 30%

P/E

Forward P/E

Yield

EPS growth this year

EPS growth next year

14.64

10.98

2.66%

82.57%

20.00%

The second largest company in the group is Noah Holdings. Primarily a financial company, Noah is seeing strong growth due to the growth of China's wealthy upper class. With a net margin of 33% and a free cash flow at 30% of revenue, Noah is ready to return cash to shareholders. Noah has $163 Million of cash and short-term investments sitting on its balance sheet - equal to 55% of its market cap.

3. Evolution Petroleum Corp. (NYSEAMEX:EPM)

Market cap. - $218 Million

Price - $7.86

Evolution Petroleum Corporation engages in the acquisition, exploitation and development of properties for the production of crude oil and natural gas in the United States. It holds interests in the Delhi Field, Giddings Field project located in central Texas and Lopez Field project located in south Texas. The company also holds a 45% interest in a joint venture with 114 gross probable drilling locations in the Mississippian Lime play in Oklahoma. The company has 13.4 MMBOE of proved reserves and 12.7 MMBOE of probable reserves.

Gross Margin - 83%

Net Margin - 29%

Net Operating Cash Flow as a % of Revenue - 57%

P/E

Forward P/E

Yield

EPS growth this year

EPS growth next year

55.57

9.97

N/A

1718.41%

168.97%

Operating in the oil and gas sector usually comes with high margins and it is no different for EPM. With a net margin of 29% the company shows it is not wasting the high margin generated from hydrocarbon production. Cash flow as a percent of revenue came in higher due to some deferred taxes. Overall the balance sheet looks sound with more cash and short-term investments than total liabilities.

4. The Female Health Company. (NASDAQ:FHCO)

Market cap. - $ 203 Million

Price - $7.32

The Female Health Company manufactures, markets, and sells consumer healthcare products in the United States and internationally. The Female Health Company sells its products to public health clinics, as well as to not-for-profit organizations. It markets its product directly, as well as through distribution agreements and other arrangements with commercial partners, which market directly to consumers in various countries. The company was founded in 1896.

Gross Margin - 53%

Net Margin - 29%

Net Operating Cash Flow as a % of Revenue - 38%

P/E

Forward P/E

Yield

EPS growth this year

EPS growth next year

17.8

18.26

3.37%

-21.04%

18.18%

The company operates in a very niche market and this shows through in its cash flows. Already paying a dividend that is twice covered the company has almost no debt and is funding expansion from cash and retained earnings. EPS growth slowed this year, but growth in the high teens is expected next year. With such high cash generation I would not rule out share buybacks or takeovers.

5. Synergy Resources Corporation (NYSEAMEX:SYRG)

Market cap. - $194 Million

Price - $3.72

Synergy Resources Corporation engages in the acquisition, exploitation, exploration, development and production of oil and natural gas properties. As of August 31, 2012, the company operated 146 wells, as well as held approximately 222,085 gross acres and 187,751 net acres under lease. Its estimated net proved oil and gas reserves included 5.1 million barrels of oil and condensate, and 33.4 billion cubic feet of natural gas.

Gross Margin - 61%

Net Margin - 49%

Net Operating Cash Flow as a % of Revenue - 85%

P/E

Forward P/E

Yield

EPS growth this year

EPS growth next year

15.08

6.28

N/A

156.21%

57.89%

Synergy once again shows strong cash generation from an oil producer. Net margins are nearly 50% and cash flow comes in at 85% although that is partly down to accounting. The company is seeing strong growth, on a forward P/E of 6.3. Once again this firm has enough cash on its balance sheet to cover all debt and all liabilities!

That's it - Five small caps trading under $10 all with strong cash flows and some already returning this cash to shareholders.

Source: http://finviz.com/, www.marketwatch.com/

Source: Small Caps With A High Cash Flow