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.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 5-Year Expected EPS Growth Rate is a long term annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
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.
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.
We first looked for small cap stocks. Next, we then screened for businesses that are considered high-growth, with 5-year projected EPS growth above 25%. We then looked for businesses that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(ROA > 10%). We did not screen out any sectors.
Do you think these small-cap stocks failed to price their value accurately? Use this list as a starting-off point for your own analysis.
1) Akorn, Inc. (AKRX)
|Industry:||Drugs - Generic|
Akorn, Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 45.39%, a Return on Equity of 34.73%, and a Return on Assets of 20.58%. The short interest was 16.49% as of 06/17/2012. 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.
2) Travelzoo Inc. (TZOO)
|Industry:||Internet Information Providers|
Travelzoo Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 35.00%, a Return on Equity of 58.43%, and a Return on Assets of 26.42%. The short interest was 42.69% as of 06/17/2012. Travelzoo Inc., an Internet media company, together with its subsidiaries, publishes travel and entertainment deals from travel and entertainment companies, and local businesses in North America and Europe. Its publications and products include the Travelzoo Websites, such as travelzoo.com.
3) Krispy Kreme Doughnuts, Inc. (KKD)
Krispy Kreme Doughnuts, Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 26.50%, a Return on Equity of 97.72%, and a Return on Assets of 64.58%. The short interest was 7.10% as of 06/17/2012. 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.
4) Neurocrine Biosciences Inc. (NBIX)
|Industry:||Drug Manufacturers - Major|
Neurocrine Biosciences Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 69.00%, a Return on Equity of 40.52%, and a Return on Assets of 19.65%. The short interest was 4.59% as of 06/17/2012. Neurocrine Biosciences, Inc. engages in the discovery, development, and commercialization of drugs for the treatment of neurological and endocrine-related diseases and disorders in the United States. It develops drugs for endometriosis, stress-related disorders, pain, tardive dyskinesia, uterine fibroids, diabetes, insomnia, and other neurological and endocrine-related diseases and disorders. The company's products in clinical development include Elagolix, a Phase II drug for endometriosis; Vesicular Monoamine Transporter 2 Inhibitor (VMAT2), a Phase II drug for movement disorders; CRF2 Peptide Agonist, a Phase II drug for cardiovascular diseases; CRF1 Antagonist, a Phase II drug for stress-related disorders; and Elagolix, a Phase II drug for uterine fibroids.
5) Gruma S.A.B. de CV (GMK)
|Industry:||Processed & Packaged Goods|
Gruma S.A.B. de CV has a 5-Year Projected Earnings Per Share Growth Rate of 43.64%, a Return on Equity of 51.74%, and a Return on Assets of 13.94%. The short interest was 0.08% as of 06/17/2012. Gruma, S.A.B. de C.V., through its subsidiaries, engages in the production and sale of corn flour, wheat flour, tortillas, and other related products.
6) Teavana Holdings, Inc. (TEA)
Teavana Holdings, Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 31.67%, a Return on Equity of 35.17%, and a Return on Assets of 21.52%. The short interest was 20.03% as of 06/17/2012. Teavana Holdings, Inc., together with its subsidiaries, operates as a specialty retailer of loose-leaf teas, tea wares, and other tea-related merchandise in the United States, Canada, and Mexico. The company offers approximately 100 varieties of loose-leaf teas; and a selection of fresh-brewed teas. It also provides tea wares and other tea-related merchandise, such as handcrafted cast-iron, clay, and ceramic tea pots; tea cups and mugs; tea accessories; tea dcor and media products; and tea foods.
7) Tesoro Logistics LP (TLLP)
|Industry:||Oil & Gas Pipelines|
Tesoro Logistics LP has a 5-Year Projected Earnings Per Share Growth Rate of 29.50%, a Return on Equity of 37.57%, and a Return on Assets of 29.45%. The short interest was 0.06% as of 06/17/2012. 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. Financial data was sourced from Finviz and Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.