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Small-cap stocks can offer investors greater rewards than large-cap alternatives, although this comes with its fair share of added risk. To mitigate that risk, today we searched for small cap companies whose fundamentals indicate that they know how to turn a substantial profit. We focused further on services companies that look undervalued from a price-multiple perspective. You might like the list our screen produced.

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 PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off 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' (expensive) - a PEG ratio of 1 means the company is fairly priced.

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 Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue

We first looked for small cap services stocks. From here, we then looked for companies that appear undervalued from a price-multiple perspective (P/E<10)(PEG Ratio < 1). We then looked for companies with strong profitability (ROA > 10%)(Net Margin [TTM]>10%).

Do you think these small-cap stocks will break through to new highs? Use our list along with your own analysis.

1) EZCORP, Inc. (NASDAQ:EZPW)

Sector:Services
Industry:Specialty Retail, Other
Market Cap:$1.15B
Beta:0.80

EZCORP, Inc. has a Price/Earnings Ratio of 8.22, a Price/Earnings to Growth Ratio of 0.55, a Return on Assets of 16.44%, and a Net Margin of 14.82%. The short interest was 4.60% as of 06/12/2012. EZCORP, Inc. 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.

2) Bridgepoint Education, Inc. (NYSE:BPI)

Sector:Services
Industry:Education & Training Services
Market Cap:$999.65M
Beta:-

Bridgepoint Education, Inc. has a Price/Earnings Ratio of 7.12, a Price/Earnings to Growth Ratio of 0.39, a Return on Assets of 24.51%, and a Net Margin of 15.92%. The short interest was 18.34% as of 06/12/2012. Bridgepoint Education, Inc. provides postsecondary education services. It offers associate's, bachelor's, master's, and doctoral programs in the disciplines of business, education, psychology, social sciences, and health sciences. The company offers its programs at campuses of its Ashford University located in Clinton, Iowa; and University of the Rockies located in Colorado Springs, Colorado, as well as through online.

3) Giant Interactive Group, Inc. (NYSE:GA)

Sector:Services
Industry:Business Services
Market Cap:$1.13B
Beta:1.00

Giant Interactive Group, Inc. has a Price/Earnings Ratio of 8.00, a Price/Earnings to Growth Ratio of 0.62, a Return on Assets of 17.81%, and a Net Margin of 51.08%. The short interest was 2.21% as of 06/12/2012. Giant Interactive Group Inc. develops and operates online games in the People's Republic of China. It primarily offers multiplayer online role playing games (MMORPGs). The company operates 11 games, including 9 MMORPGs, 1 casual massively multiplayer online game, and 1 strategy browser game.

4) Stamps.com Inc. (NASDAQ:STMP)

Sector:Services
Industry:Catalog & Mail Order Houses
Market Cap:$380.23M
Beta:1.19

Stamps.com Inc. has a Price/Earnings Ratio of 9.43, a Price/Earnings to Growth Ratio of 0.52, a Return on Assets of 42.20%, and a Net Margin of 37.32%. The short interest was 12.64% as of 06/12/2012. Stamps.com Inc. provides Internet-based postage solutions. The company offers solutions to mail and ship various mail pieces, including postcards, envelopes, flats, and packages. Its products and services include the United States Postal Service (OTCPK:USPS)-approved PC Postage Service that enables users to print electronic stamps directly onto envelopes, plain paper, or labels using personal computer, printer, and Internet connection; and PhotoStamps, a patented form of postage, which allows consumers to turn digital photos, designs, or images into valid United States postage.

5) Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG)

Sector:Services
Industry:Restaurants
Market Cap:$350.74M
Beta:-

Bravo Brio Restaurant Group, Inc. has a Price/Earnings Ratio of 4.88, a Price/Earnings to Growth Ratio of 0.28, a Return on Assets of 36.59%, and a Net Margin of 20.06%. The short interest was 6.11% as of 06/12/2012. Bravo Brio Restaurant Group, Inc. owns and operates Italian restaurant brands in the United States. Its brands include BRAVO! Cucina Italiana, and BRIO Tuscan Grille. The company also operates an American-French bistro restaurant under the brand Bon Vie.

6) Denny's Corporation (NASDAQ:DENN)

Sector:Services
Industry:Restaurants
Market Cap:$424.02M
Beta:1.66

Denny's Corporation has a Price/Earnings Ratio of 3.80, a Price/Earnings to Growth Ratio of 0.20, a Return on Assets of 36.03%, and a Net Margin of 21.54%. The short interest was 2.94% as of 06/12/2012. Denny's Corporation, through its subsidiaries, engages in the ownership and operation of a chain of family-style restaurants. The company operates traditional American-style food restaurants under the Denny's brand name. As of December 28, 2011, it had 1,479 franchised/licensed restaurants and 206 company-owned and operated restaurants in the United States, Canada, Costa Rica, Mexico, Honduras, Guam, Puerto Rico, and New Zealand.

7) Capella Education Co. (NASDAQ:CPLA)

Sector:Services
Industry:Education & Training Services
Market Cap:$426.82M
Beta:0.73

Capella Education Co. has a Price/Earnings Ratio of 9.56, a Price/Earnings to Growth Ratio of 0.70, a Return on Assets of 19.98%, and a Net Margin of 11.25%. The short interest was 10.28% as of 06/12/2012. Capella Education Company operates as an online postsecondary education services company in the United States and internationally. The company, trough its Capella University, offers various doctoral, master's, and bachelor's programs primarily for working adults in public service leadership, behavioral health and human services, business management and technology, and education markets; and online distance learning services for degree-entry programs and doctoral level programs in various disciplines, including business, management, psychology, law, and computing disciplines. It also provides learner support services, such as academic services comprising new learner orientation, technical support, academic advising, research services, online tutoring, and writing services; and administrative services through the telephone and Internet. In addition, the company's learner support services include library services, such as access to collection of online journals, eBooks, and interlibrary loan services; and career center services comprising career counseling, job search advising, and career management support services to learners and alumni.

8) Krispy Kreme Doughnuts, Inc. (NYSE:KKD)

Sector:Services
Industry:Restaurants
Market Cap:$410.19M
Beta:1.57

Krispy Kreme Doughnuts, Inc. has a Price/Earnings Ratio of 2.70, a Price/Earnings to Growth Ratio of 0.10, a Return on Assets of 64.58%, and a Net Margin of 40.07%. The short interest was 7.24% as of 06/12/2012. Krispy Kreme Doughnuts, Inc. operates as a branded retailer and wholesaler of doughnuts, beverages, and treats and packaged sweets worldwide. The company's doughnuts products comprise Original Glazed doughnut; cake doughnuts and crullers; and seasonal doughnuts comprising hearts, pumpkins, footballs, eggs, and snowmen, as well as honeybuns, fruit pies, mini-crullers, and chocolate products. Its beverage products consists of drip coffees, coffee-based and non-coffee-based frozen drinks, juices, sodas, milks, water, frozen/blended beverages, and packaged and fountain beverages.

*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.

Source: 8 Small Cap Services Stocks Looking Cheap But With Solid Profitability