Interested in following smaller companies? Interested in gaining exposure to financial companies? Interested in stocks paying significant dividends? Looking for ways to dig deeper into a company's profitability? Looking for undervalued stocks? For ideas on how to evaluate this, we ran a screen.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" 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.
We first looked for small cap financial dividend stocks. From here, we then looked for companies with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS growth rate>10%). We next screened for businesses that appear undervalued from a price-multiple perspective (P/E<10)(forward P/E<10).
Do you think these small-cap stocks are in strong positions for future growth? Use our list to help with your own analysis.
1) Triangle Capital Corporation (TCAP)
Triangle Capital Corporation has a Dividend Yield of 9.41% and Payout Ratio of 64.14% and Operating Profit Margin of 63.67% and Earnings Per Share Growth Rate of 45.93% and Price/Earnings Ratio of 7.40 and Forward Price/Earnings Ratio of 9.17. The short interest was 3.24% as of 05/13/2012. Triangle Capital Corporation is a business development company specializing in private equity and venture capital investments. It focuses on leveraged buyouts, management buyouts, ESOPs, change of control transactions, acquisition financings, growth financing, and re-capitalizations in lower middle market companies. The firm prefers to make investments in many business sectors including manufacturing, distribution, transportation, energy, communications, health services, restaurants, media, and others.
2) PennyMac Mortgage Investment Trust (PMT)
|Industry:||REIT - Residential|
PennyMac Mortgage Investment Trust has a Dividend Yield of 11.39% and Payout Ratio of 62.05% and Operating Profit Margin of 56.37% and Earnings Per Share Growth Rate of 67.86% and Price/Earnings Ratio of 7.92 and Forward Price/Earnings Ratio of 5.94. The short interest was 3.95% as of 05/13/2012. PennyMac Mortgage Investment Trust is based in the United States..
3) Capstead Mortgage Corp. (CMO)
|Industry:||REIT - Diversified|
Capstead Mortgage Corp. has a Dividend Yield of 12.39% and Payout Ratio of 103.18% and Operating Profit Margin of 66.67% and Earnings Per Share Growth Rate of 15.07% and Price/Earnings Ratio of 7.75 and Forward Price/Earnings Ratio of 8.12. The short interest was 4.51% as of 05/13/2012. Capstead Mortgage Corporation operates as a self-managed real estate investment trust. It invests in leveraged portfolio of residential mortgage pass-through securities consisting of adjustable-rate mortgage securities issued and guaranteed by government-sponsored enterprises or by an agency of the federal government. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders.
4) Prospect Capital Corporation (PSEC)
Prospect Capital Corporation has a Dividend Yield of 11.15% and Payout Ratio of 75.08% and Operating Profit Margin of 53.02% and Earnings Per Share Growth Rate of 316.45% and Price/Earnings Ratio of 6.78 and Forward Price/Earnings Ratio of 9.41. The short interest was 8.68% as of 05/13/2012. Prospect Capital Corporation is a business development company. It is a private equity firm specializing in late venture, middle market, mature, mezzanine finance, buyouts, re-capitalizations, growth capital, development, and bridge transactions. The firm makes secured debt and equity investments in private and microcap public businesses.
5) Crexus Investment Corp. (CXS)
|Industry:||REIT - Diversified|
Crexus Investment Corp. has a Dividend Yield of 10.48% and Payout Ratio of 75.70% and Operating Profit Margin of 97.06% and Earnings Per Share Growth Rate of 163.94% and Price/Earnings Ratio of 6.65 and Forward Price/Earnings Ratio of 8.97. The short interest was 2.20% as of 05/13/2012. CreXus Investment Corp., through its subsidiaries, operates as a commercial real estate company. It acquires, manages, and finances commercial mortgage loans and commercial real estate debts, commercial real properties, commercial mortgage-backed securities, other commercial real estate-related assets, and agency residential mortgage-backed securities. The company qualifies as a real estate investment trust for federal income tax purposes.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.