Small-cap stocks tend to offer investors greater growth opportunities than large-cap alternatives, although this comes with its fair share of added risk. Are you looking for small-caps? Do you feel better knowing your favorite companies have enough cash to cover their operating expenses for a very long time? Looking for undervalued stocks? For ideas on where to look, we ran a screen you might find interesting.
The current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. This doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a quick ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able it is to meet current obligations using liquid assets).
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecast earnings instead. While this number might not be as accurate because it uses forecast numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial leverage, also known as the equity multiplier, illustrates how a firm is financing its assets. The lower the number, the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.
The PEG (price/earnings to growth) ratio is a valuation metric for determining the relative tradeoff between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus, using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is "better" (cheaper) and a higher ratio is "worse' (more expensive); a PEG ratio of 1 means the company is fairly priced.
We first looked for small-cap stocks. Next, we screened for businesses with a large amount of cash on hand (current ratio > 2)(quick ratio > 2). We then looked for businesses with a low price-multiple premium (forward P/E < 10)(PEG ratio < 1). We did not screen out any sectors.
Do you think these small-cap stocks failed to price their value accurately? Use our list to help with your own analysis.
1. Cascade Corp. (CASC)
|Industry:||Farm & Construction Machinery|
Cascade Corp. has a Current Ratio of 3.75 and Quick Ratio of 2.22 and Forward Price/Earnings Ratio of 8.17 and Price/Earnings to Growth Ratio of 0.76. The short interest was 2.60% as of May 10, 2012.
Cascade engages in the manufacture and distribution of materials handling load engagement devices and related replacement parts under the Cascade name primarily for the lift truck and construction industries worldwide. It offers lift truck related products that are designed to handle loads with pallets and for specialized application loads without pallets; and specialized products, which include devices specifically designed to handle appliances, carpet and paper rolls, baled materials, textiles, beverage containers, drums, canned goods, bricks, masonry blocks, lumber, and plywood, as well as boxed, packaged, and containerized products. The company also provides construction related products to enable loaders, backhoes, and rough terrain lift trucks to move materials, as well as for use on excavators and loaders for conventional and specialized ground engagement applications. Its customers include lift truck original equipment manufacturers (OEM), original equipment dealers, and distributors; and OEMs who manufacture construction, mining, agricultural, and industrial vehicles.
2. Deckers Outdoor (DECK)
|Industry:||Textile - Apparel Footwear & Accessories|
Deckers Outdoor has a Current Ratio of 6.81 and Quick Ratio of 4.62 and Forward Price/Earnings Ratio of 9.44 and Price/Earnings to Growth Ratio of 0.60. The short interest was 22.27% as of May 10, 2012.
Deckers Outdoor engages in the design, manufacture, and marketing of footwear and accessories for outdoor activities and casual lifestyle use for men, women, and children. The company offers luxury footwear, handbags, apparel, and cold weather accessories under the UGG brand name; open and closed-toe outdoor lifestyle footwear, multi-sport shoes, light hiking shoes, amphibious footwear, and rugged outdoor travel shoes under the Teva brand name; action sport footwear under the Sanuk brand name; high-end casual footwear for men and women under the Tsubo brand name; outdoor performance and lifestyle footwear under the Ahnu brand name; and work footwear under the Mozo brand name. The company sells its products primarily to specialty retailers, department stores, outdoor retailers, sporting goods retailers, shoe stores, and online retailers. Deckers Outdoor also sells its products directly to end-user consumers through its Websites, call centers, retail concept stores, and retail outlet stores, as well as through retailers in the U.S.
3. EZCORP (EZPW)
|Industry:||Specialty Retail, Other|
EZCORP, Inc. has a Current Ratio of 4.25 and Quick Ratio of 3.28 and Forward Price/Earnings Ratio of 7.29 and Price/Earnings to Growth Ratio of 0.60. The short interest was 3.34% as of May 10, 2012.
EZCORP provides specialty consumer financial services. The company offers pawn loans that are non-recourse loans collateralized by tangible personal property, including jewelry, consumer electronics, tools, sporting goods, and musical instruments, as well as sells merchandise consisting of second-hand collateral forfeited from its pawn lending activities or purchased from customers, and new or refurbished merchandise from third party vendors. It also provides a range of financial services, such as signature loans consisting of payday loans, installment loans, and lines of credit; and auto title loans, which include single payment auto title loans, and auto title lines of credit.
4. Cash America International (CSH)
Cash America International has a Current Ratio of 4.59 and Quick Ratio of 3.70 and Forward Price/Earnings Ratio of 7.87 and Price/Earnings to Growth Ratio of 0.67. The short interest was 14.84% as of May 10, 2012. Cash America provides specialty financial services to individuals in the U.S. and Mexico. The company operates in two segments, Retail Services and E-Commerce. The Retail Services segment provides pawn lending, consumer loans, and check cashing, as well as other ancillary services, such as money orders, wire transfers, and pre-paid debit cards.
5. C&J Energy Services (CJES)
|Industry:||Oil & Gas Equipment & Services|
C&J Energy Services has a Current Ratio of 2.83 and Quick Ratio of 2.26 and Forward Price/Earnings Ratio of 4.54 and Price/Earnings to Growth Ratio of 0.30. The short interest was 97.99% as of May 10, 2012.
C&J Energy Services, through its subsidiaries, provides hydraulic fracturing, coiled tubing, and pressure pumping services to oil and natural gas exploration and production companies. The company offers hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability; coiled tubing services to perform various functions associated with well-servicing operations and to facilitate completion of horizontal wells; and pressure pumping services, which include well injection, cased-hole testing, workover pumping, mud displacement, wireline pumpdowns, and pumping-down coiled tubing. It also constructs and sells oilfield equipment comprising hydraulic fracturing pumps, coiled tubing units, pressure pumping units, and other equipment for third-party customers in the energy services industry; and provides equipment repair services, and oilfield parts and supplies.
6. Altra Holdings (AIMC)
|Industry:||Industrial Electrical Equipment|
Altra Holdings has a Current Ratio of 3.39 and Quick Ratio of 2.11 and Forward Price/Earnings Ratio of 9.39 and Price/Earnings to Growth Ratio of 0.80. The short interest was 5.05% as of May 10, 2012. Altra, through its subsidiary Altra Industrial Motion, designs, produces, and markets a range of mechanical power transmission and motion control products worldwide. The company provides industrial clutches and brakes for elevators, forklifts, lawn mowers, oil well draw works, punch presses, and conveyors; open and enclosed gearing products for conveyors, ethanol mixers, packaging machinery, and metal processing equipment; and engineered couplings for extruders, turbines, steel strip mills, and pumps.
Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.