4 Low Risk Small-Caps With Strong Sources Of Profitability

Includes: AEA, POR, SLRC, UNF
by: Kapitall

Do you worry about volatility when considering stocks? If so, we ran a screen keeping this idea in mind.

We began by screening small-cap stocks for those with low trading volatility over the last month, under +/-2%. This means that on average these stocks have been trading within a +/- 2% range over the last month.

We then ran DuPont analysis on these names to find those with strong sources of profitability. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:


= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,

•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)

•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks have strong enough fundamentals to move higher? Use this list as a starting point for your own analysis.

List sorted by average intra-day volatility over the last month.

1. Advance America, Cash Advance Centers Inc. (AEA): Provides cash advance services in the United States, the United Kingdom, and Canada. Market cap at $656.05M. Price at $10.48. Average intra-day volatility over the last month at 0.27%. MRQ net profit margin at 14.54% vs. 9.83% y/y. MRQ sales/assets at 0.375 vs. 0.371 y/y. MRQ assets/equity at 1.684 vs. 1.836 y/y.

2. Portland General Electric Company (POR): Operates as an integrated electric utility in Oregon. Market cap at $1.87B. Price at $24.95. Average intra-day volatility over the last month at 1.15%. MRQ net profit margin at 6.05% vs. 5.49% y/y. MRQ sales/assets at 0.084 vs. 0.083 y/y. MRQ assets/equity at 3.447 vs. 3.449 y/y.

3. UniFirst Corp. (UNF): Provides workplace uniforms and protective work wear clothing in the United States, Canada, and Europe. Market cap at $1.20B. Price at $60.33. Average intra-day volatility over the last month at 1.22%. MRQ net profit margin at 6.19% vs. 5.84% y/y. MRQ sales/assets at 0.264 vs. 0.242 y/y. MRQ assets/equity at 1.389 vs. 1.514 y/y.

4. Solar Capital Ltd. (SLRC): A business development company specializing in investments in leveraged companies, including middle market companies. Market cap at $765.15M. Price at $20.19. Average intra-day volatility over the last month at 1.23%. MRQ net profit margin at 144.1% vs. 133.88% y/y. MRQ sales/assets at 0.033 vs. 0.024 y/y. MRQ assets/equity at 1.339 vs. 1.562 y/y.

*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.