Goldman Sachs (GS) chairman, Jim O’Neil, recently came out saying he is still bullish on China (source) and wishy washy on the US, but that’s nothing new. It's great to hear his opinion but who knows what type non-public information he is potentially using to arrive at these conclusions. Now what we do know is that thanks to the markets being in disarray some profitable small-cap names are now trading at some very interesting price Price/Cash Flow valuations and deserve further attention.
Price-to-Cash Flow is a less often-used price-multiple valuation ratio. We feel that it offers unique insight for investors because it uses cash flow instead of earnings to eliminate non-cash factors. This provides a much clearer standpoint on how much money is coming in and out of the company. This ratio also gives some insight into a company's future financial health.
The Return on Equity (ROE) is an effective profitability ratio that let’s investors see if a company is maximizing shareholder equity. This metric provides a rate of return by showing net income as a percentage of shareholder equity. When it’s all said and done investors have a good idea of how much earnings are being generated from shareholder equity.
We ran a screen specifically for small cap stocks trading with a low Price/CFO ratio (X<8). From this narrowed list of candidates we then looked for illustrated strong shareholder profitability through ROE over the last twelve months (X>15). We did not screen out any sectors or market caps.
The list is ranked from highest to lowest by ROE (TTM):
1. Momenta Pharmaceuticals, Inc. (MNTA)
Sector | Healthcare |
Industry | Biotechnology |
Market Cap | $683M |
Beta | 1.41 |
The company develops new and generic drug products. The company has a P/CFO ratio of 5.43. MNTA has an ROE TTM of 93.15%. The short interest was 10.10% as of 09/30/2011.
2. Kulicke & Soffa Industries Inc. (KLIC)
Sector | Technology |
Industry | Semiconductor Equipment & Materials |
Market Cap | $659M |
Beta | 3.00 |
Makes, sells and services capital equipment along with packaging materials. The company has a P/CFO ratio of 3.87. KLIC has an ROE TTM of 49.84%. The short interest was 5.90% as of 09/30/2011.
3. Sonic Corporation. (SONC)
Sector | Consumer Cyclical |
Industry | Restaurants |
Market Cap | $422M |
Beta | 1.66 |
Operates and franchises drive-in restaurants in the US. The company has a P/CFO ratio of 5.02. SONC has an ROE TTM of 43.29%. The short interest was 8.10% as of 09/30/2011.
4. Usana Health Sciences, Inc. (USNA)
Sector | Consumer Defensive |
Industry | Household & Personal Products |
Market Cap | $464M |
Beta | 1.04 |
Develops and sells personal care and science-based nutritional products. The company has a P/CFO ratio of 6.87. USNA has an ROE TTM of 40.52%. The short interest was 43.90% as of 09/30/2011. Given the short interest this may be a short favorite or potentially a great short squeeze.
5. TriMas Corporation. (TRS)
Sector | Industrials |
Industry | Diversified Industrials |
Market Cap | $583M |
Beta | 2.33 |
Makes highly engineered products for a variety of niche markets. The company has a P/CFO ratio of 9.92. TRS has an ROE TTM of 40.13%. The short interest was 5.70% as of 09/30/2011.
6. LDK Solar Company, Ltd. (LDK)
Sector | Technology |
Industry | Solar |
Market Cap | $399M |
Beta | 2.71 |
Manufactures multicrystalline solar wafers. The company has a P/CFO ratio of 0.73. LDK has an ROE TTM of 37.95%. The short interest was N/A as of 09/30/2011.
7. Belo Corporation. (BLC)
Sector | Consumer Cyclical |
Industry | Broadcasting - TV |
Market Cap | $658M |
Beta | 3.70 |
Manages a group media assets ranging from television broadcasting to interactive media operations. The company has a P/CFO ratio of 5.73. BLC has an ROE TTM of 36.12%. The short interest was 9.10% as of 09/30/2011.
8. Safe Bulkers, Inc. (SB)
Sector | Industrials |
Industry | Shipping & Ports |
Market Cap | $475M |
Beta | 2.27 |
The company has a P/CFO ratio of 3.87. SB has an ROE TTM of 35.93%. The short interest was 2.00% as of 09/30/2011.
9. Kemet Corporation. (KEM)
Sector | Technology |
Industry | Electronic Components |
Market Cap | $343M |
Beta | 4.52 |
Makes multilayer ceramic capacitors, tantalum capacitors, and solid aluminum capacitors. The company has a P/CFO ratio of 3.89. KEM has an ROE TTM of 35.40%. The short interest was 7.10% as of 09/30/2011.
10. Grand Canyon Education, Inc. (LOPE)
Sector | Consumer Defensive |
Industry | Education & Training Services |
Market Cap | $718M |
Beta | 0.55 |
The company has a P/CFO ratio of 8.28. LOPE has an ROE TTM of 35.20%. The short interest was 8.40% as of 09/30/2011.
We hope this list helps as investors do their own due diligence and research on small stocks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
