Small-cap stocks tend to offer investors greater growth opportunities than large-cap alternatives, although this comes with its fair share of added risk. One way to mitigate that risk is to focus on small caps that have two traits: a track record of profitability, and strong projected growth on the horizon. Today we focused our screen on these sorts of stocks, and came up with a short, but rather interesting list.
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.
Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
We first looked for small cap stocks. We then looked for businesses with strong profit margins (1-year operating margin>15%)(ROE [TTM]>30%). We next screened for businesses with projected high growth, measured by 1-year projected EPS growth above 25%. We did not screen out any sectors.
Do you think these small-cap stocks should be trading higher? Please use our list to assist with your own analysis.
1) Clayton Williams Energy Inc. (NYSE:CWEI)
|Industry:||Independent Oil & Gas|
Clayton Williams Energy Inc. has a Operating Profit Margin of 26.66%, a Return on Equity of 36.93%, and a 1-Year Projected Earnings Per Share Growth Rate of 27.20%. The short interest was 7.98% as of 06/13/2012. Clayton Williams Energy, Inc., an independent oil and gas company, engages in the exploration for and production of oil and natural gas primarily in Texas, Louisiana, and New Mexico.Its principal properties are located in Permian basin and the Giddings area. As of December 31, 2011, it had estimated proved reserves of 64,349 thousand barrels of oil equivalent; held interests in 6,830 gross producing oil and gas wells; and owned leasehold interests in approximately 775,000 gross undeveloped acres.
2) Epoch Investment Partners, Inc. (NASDAQ:EPHC)
Epoch Investment Partners, Inc. has a Operating Profit Margin of 43.94%, a Return on Equity of 38.01%, and a 1-Year Projected Earnings Per Share Growth Rate of 29.00%. The short interest was 3.81% as of 06/13/2012. Epoch Investment Partners, Inc. is a publicly owned investment manager. The firm primarily provides its services to pooled investment vehicles, typically mutual funds. It also caters to high net worth individuals, investment companies, corporations, public funds, foundations, state or municipal government entities, endowments, pension and profit sharing plans, and charitable organizations.
3) Akorn, Inc. (NASDAQ:AKRX)
|Industry:||Drugs - Generic|
Akorn, Inc. has a Operating Profit Margin of 26.68%, a Return on Equity of 34.73%, and a 1-Year Projected Earnings Per Share Growth Rate of 28.57%. The short interest was 14.76% as of 06/13/2012. 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) Tesoro Logistics LP (NYSE:TLLP)
|Industry:||Oil & Gas Pipelines|
Tesoro Logistics LP has a Operating Profit Margin of 46.62%, a Return on Equity of 37.57%, and a 1-Year Projected Earnings Per Share Growth Rate of 36.00%. The short interest was 0.07% as of 06/13/2012. Tesoro Logistics LP engages in the ownership, operation, development, and acquisition of crude oil and refined products logistics assets in the United States. The company is involved in the gathering, terminalling, transportation, and storage of crude oil and refined products. Its assets consist of a crude oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana; eight refined products terminals in the midwestern and western United States; a crude oil and refined products storage facility; and five related short-haul pipelines.
*Company profiles were sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.