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? Company liquidity is an important consideration in any stock analysis. Liquidity gives a company the ability to make big acquisitions if it sees investment opportunities, a cushion for future lulls in demand, and most importantly, it keeps a company's doors open. Are these the types of stocks that you're looking for? Do you prefer companies with strong profits? For ideas on how to start your search, we ran a screen you may find helpful.
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. Now 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 to meet current obligations using liquid assets).
Return on Assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.
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.
We first looked for small cap stocks. We then looked for companies with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). From here, we then looked for companies with strong profitability (ROA > 10%)(1-year operating margin>15%). We did not screen out any sectors.
Do you think these small-cap stocks failed to price their value accurately? Use our screened list as a starting point for your own analysis.
1) AmSurg Corp. (AMSG)
AmSurg Corp. has a Current Ratio of 2.94 and Quick Ratio of 2.69 and Return on Assets of 14.70% and Operating Profit Margin of 30.75%. The short interest was 4.02% as of 05/17/2012. AmSurg Corp., through its subsidiaries, engages in the development, acquisition, and operation of ambulatory surgery centers (ASC) in partnership with physicians in the United States. The company's surgery centers perform colonoscopy and other endoscopy procedures in the areas of gastroenterology; cataracts and retinal laser surgeries in the area of ophthalmology; and knee and shoulder arthroscopy and carpal tunnel repair in the area of orthopedics. As of December 31, 2011, it operated 228 ASCs in 35 states and the District of Columbia of the United States, including 146 centers for gastrointestinal endoscopy procedures, 36 centers for ophthalmology surgery procedures, 39 multi-specialty centers, and 7 centers for orthopaedic procedures.
2) ADTRAN Inc. (ADTN)
ADTRAN Inc. has a Current Ratio of 5.50 and Quick Ratio of 4.16 and Return on Assets of 14.32% and Operating Profit Margin of 23.27%. The short interest was 9.52% as of 05/17/2012. ADTRAN, Inc. designs, manufactures, markets, and services communications network solutions that enable voice, data, video, and Internet communications across wireline and wireless networks worldwide. Its Carrier Networks division provides fiber and copper-based solutions for service providers to deliver voice, data, and video services to customers' premises and mobile network cell sites. Its products enable services, such as voice, VoIP, IP television, RF video, high speed Internet access, and data services based upon Ethernet, frame relay, TDM, and ATM networks, connecting the network with user components, such as switches, routers, gateways, integrated access devices (IADs), private branch exchanges (PBXs), and telephone key systems.
3) Akorn, Inc. (AKRX)
|Industry:||Drugs - Generic|
Akorn, Inc. has a Current Ratio of 3.34 and Quick Ratio of 2.09 and Return on Assets of 20.58% and Operating Profit Margin of 26.68%. The short interest was 13.61% as of 05/17/2012. Akorn, Inc. engages in the manufacture and marketing of diagnostic and therapeutic ophthalmic pharmaceuticals products, niche hospital drugs, and injectable pharmaceuticals in the United States and internationally. It offers products in various specialty areas, including ophthalmology, antidotes, anti-infectives, pain management, anesthesia, and vaccines. The company's Ophthalmic segment markets diagnostic products, including mydriatics and cycloplegics, anesthetics, topical stains, gonioscopic solutions, angiography dyes, and others primarily for use in the office setting.
4) C&J Energy Services, Inc. (CJES)
|Industry:||Oil & Gas Equipment & Services|
C&J Energy Services, Inc. has a Current Ratio of 2.69 and Quick Ratio of 2.06 and Return on Assets of 40.41% and Operating Profit Margin of 32.42%. The short interest was 25.94% as of 05/17/2012. C&J Energy Services, Inc., 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.
5) ATRION Corp. (ATRI)
|Industry:||Medical Instruments & Supplies|
ATRION Corp. has a Current Ratio of 9.23 and Quick Ratio of 6.23 and Return on Assets of 15.99% and Operating Profit Margin of 30.95%. The short interest was 4.02% as of 05/17/2012. Atrion Corporation, together with its subsidiaries, develops and manufactures fluid delivery devices, and ophthalmic and cardiovascular products primarily for medical applications in the United States, Canada, and internationally. The company's fluid delivery products comprise luer syringe check valves and one-way valves; tubing clamps; and specialized intravenous sets for use in anesthesia and oncology applications. Its cardiovascular products include MPS2 Myocardial Protection System that delivers essential fluids and medications to the heart during open-heart surgery; cardiac surgery vacuum relief valves; silicone vessel loops for retracting and occluding vessels in minimally invasive surgical procedures; and inflation devices for balloon catheter dilation, stent deployment, and fluid dispensing, as well as products used in heart bypass surgery to make a precision opening in the heart for attachment of the bypass vessels. The company's ophthalmic products comprise contact lens disinfection cases; and a line of balloon catheters used in the treatment of nasolacrimal duct obstruction in children and adults.
6) Cognex Corporation (CGNX)
|Industry:||Scientific & Technical Instruments|
Cognex Corporation has a Current Ratio of 6.84 and Quick Ratio of 6.22 and Return on Assets of 11.73% and Operating Profit Margin of 26.36%. The short interest was 4.49% as of 05/17/2012. Cognex Corporation provides machine vision products that capture and analyze visual information to automate tasks primarily in manufacturing processes. It operates in two divisions, Modular Vision Systems and Surface Inspection Systems. The Modular Vision Systems division develops, manufactures, and markets modular vision systems that are used to automate the manufacture of discrete items, such as cellular phones, aspirin bottles, and automobile wheels by locating, identifying, inspecting, and measuring them during the manufacturing process.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.