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Growth in company earnings derives from both accruals and cash, with accruals representing estimates made by management. In order to assess the quality of earnings, one idea is to compare the growth of operating cash flow with the growth of earnings. Cash flow growth that exceeds earnings growth may indicate a reliable earnings report.

With this idea in mind, we wanted to assess the growth in small cap stocks. We screened stocks with market caps just over $100M for those that saw quarterly operating cash flow growth year-over-year in excess of net income growth for the same period. The final list of 4 is below.



Do you believe in the earnings growth of these companies? Use this list as a starting-off point for your own analysis.

List sorted by difference between growth in operating cash flow and net income.

1. Reis, Inc. (NASDAQ:REIS): Business Services Industry. Market cap of $104.84M. Net Income grew by 72.22% ($0.62M vs. $0.36M y/y), while Operating Cash Flow grew by 91.67% ($0.69M vs. $0.36M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31). The stock is exhibiting strong upside momentum--currently trading 17.5% above its SMA20, 25.7% above its SMA50, and 41.47% above its SMA200. The stock has had a couple of great days, gaining 12.37% over the last week.

2. Westway Group, Inc. (NASDAQ:WWAY): Business Services Industry. Market cap of $120.29M. Net Income grew by 6.18% ($1.89M vs. $1.78M y/y), while Operating Cash Flow grew by 22.32% ($10.03M vs. $8.20M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31). The stock has gained 14.91% over the last year.

3. LeMaitre Vascular, Inc. (NASDAQ:LMAT):
Medical Instruments & Supplies Industry. Market cap of $108.53M. Net Income grew by 54.33% ($1.96M vs. $1.27M y/y), while Operating Cash Flow grew by 65.55% ($1.97M vs. $1.19M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31). The stock has had a couple of great days, gaining 7.83% over the last week.

4. Mad Catz Interactive Inc. (NYSEMKT:MCZ): Toys & Games Industry. Market cap of $109.10M. Net Income grew by 73.52% ($9.70M vs. $5.59M y/y), while Operating Cash Flow grew by 80.09% ($11.67M vs. $6.48M y/y) (comparing 3 months ending 2010-12-31 vs. 3 months ending 2009-12-31). This is a risky stock that is significantly more volatile than the overall market (beta = 2.15). The stock has gained 340% over the last year.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 4 Small Cap Stocks With Cash Flow Growth Exceeding Growth in Earnings