When analysts rate a company's stock as a 'Strong Buy', it's a sign that there are a variety of things that the company is doing right. It also means there is confidence that the stock is going to increase in value. Today we focus on small cap stocks sporting high analyst ratings, but that also look undervalued from a price-multiple perspective. We came up with a rather diverse list, but we think you'll find it interesting.
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.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
We first looked for small cap financial stocks. Next, we then screened for businesses with a low price-multiple premium (forward P/E<10)(P/S<1). We then looked for companies that analysts rate as "Strong Buy" (mean recommendation < 2).
Do you think these small-cap stocks will break through to new highs? Use our screened list as a starting point for your own analysis.
1) INTL FCStone Inc. (INTL)
INTL FCStone Inc. has a Forward Price/Earnings Ratio of 8.13, a Price/Sales Ratio of 0.00, and a Analysts' Rating of 1.00. The short interest was 10.25% as of 06/18/2012. INTL FCStone Inc., together with its subsidiaries, provides foreign exchange and treasury, securities execution, physical commodities trading and execution, and structured over-the-counter commodity services worldwide. It offers commodity and risk management services; treasury, global payment, and foreign exchange services; and wholesale market making services in select foreign securities, as well as involved in the origination, structuring, and placement of an array of emerging market debt instruments in the international and domestic capital markets, and trades in various international debt instruments. The company also provides clearing and execution services related to exchange-traded futures and options for the institutional and professional trader market segments; asset management, and commodity financing and facilitation services; and investment banking advisory services.
2) DFC Global Corp. (DLLR)
DFC Global Corp. has a Forward Price/Earnings Ratio of 6.76, a Price/Sales Ratio of 0.73, and a Analysts' Rating of 1.30. The short interest was 12.46% as of 06/18/2012. DFC Global Corp. provides retail financial services to unbanked and under-banked consumers, and small businesses. Its primary products and services include short-term consumer loans, single-payment consumer loans, check cashing services, secured pawn loans, and gold buying services. The company also provides other retail services and products comprising money order and money transfer products, foreign currency exchange, VISA and MasterCard branded reloadable debit cards, electronic tax filing, bill payment, and prepaid local and long-distance phone services.
3) PHH Corporation (PHH)
PHH Corporation has a Forward Price/Earnings Ratio of 8.25, a Price/Sales Ratio of 0.41, and a Analysts' Rating of 1.50. The short interest was 18.85% as of 06/18/2012. PHH Corporation provides business process management services for the mortgage and fleet industries in the United States and Canada. Its Mortgage Production segment provides private-label mortgage services to financial institutions and real estate brokers; originates, purchases, and sells mortgage loans; offers appraisal, credit research, flood certification, and tax services. Its Mortgage Servicing segment engages in collecting loan payments; remitting principal and interest payments to investors; managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance; and performing loss mitigation activities on behalf of investors.
4) American Equity Investment Life Holding Co. (AEL)
American Equity Investment Life Holding Co. has a Forward Price/Earnings Ratio of 4.87, a Price/Sales Ratio of 0.49, and a Analysts' Rating of 1.50. The short interest was 16.52% as of 06/18/2012. American Equity Investment Life Holding Company, through its subsidiaries, underwrites fixed annuity and life insurance products in the United States and the District of Columbia. Its annuity products include fixed index annuities and fixed rate annuities, as well as single premium immediate annuities. The company's life insurance products comprise traditional ordinary and term, universal life, and other interest-sensitive life insurance products. It also collects annuity deposits and insurance premiums.
*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.