There are few events as exciting as when a company stems the bleeding from a losing operation and begins to turn a profit.
Often, a company will have an increase in investor interest since growth ratios look very high when you begin to earn pennies towards an annual EPS. One cent to two cents EPS creates triple digit growth which will make great headlines and will also show up on many high-growth screeners.
To find companies first entering or re-emerging into the world of profitability since last year, we will screen for the following:
- Market Cap < 2 Billion
- EPS = -0.32 - 0
- 1 Year Earnings Growth > 38%
- Revenue % Change YOY > 35%
- Analyst Recommendation Moderate Buy or Better
We are looking for growth that emerging or returning to profitability. We want these small cap companies to be increasing their earnings on the back of increasing revenue. Although earnings can be boosted by stock repurchases or tax credits, we want to anticipate a more stable increase in earnings over time based on revenue.
'Crossing the Profitable Hump' Small - Micro Caps Stock List
- Xueda Education Group (XUE)
- Constant Contact (CTCT)
- CytRx Corp. (CYTR)
- Endologix Inc (ELGX)
- EnerNOC Inc. (ENOC)
- Jazz Pharmaceuticals, Inc. (JAZZ)
- PLX Technology (PLXT)
- Real Goods Solar (RSOL)
- VirtualScopics, Inc. (VSCP)
- Wave Systems Corp. (WAVX)
- Great Basin Gold Ltd. (GBG)
- Park City Group (PCYG)
- Procera Networks, Inc. (PKT)
Caution is Necessary
Keep in mind that many of the above stock picks will be quite volatile when compared to the market. The market has a beta of 1. Stocks witha beta of 1.3 or higher will amplify market movements: CYTR, ELGX, JAZZ, PYCG, and PKT. The market is wanting to make a pull-back right now. It might be prudent to see how far it does so before climbing aboard some of the more volatile picks.
Low price to sales is considered a value picking criteria by some. These stocks have a P/S ratio of 1.4 or less: PLXT and RSOI.
Also, be aware that the very small market capitalization stocks can prove very volatile over a long period of time, especially when you are attempting to pick up a sizeable amount of shares. These stocks have a market cap under 150 million: PCYG, PKT, VSCP, RSOL, and CYTR.
The industries represented are education and training services, marketing services, biotech, medical instruments, business services, semiconductors, general building materials, staffing and outsourcing, computer peripherals, gold, and business software and services.
As always, carefully check each small to micro cap stock and look over the fundamentals and growth rates very carefully. Stock screening is good for generating ideas, but you should never screen and buy solely based on the stocks you find. Do your due diligence!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.