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 the highest analysts ratings, i.e. 'Strong Buy' ratings from analysts. Today we screened on the top rated small cap stocks, and then focused further on those that seem undervalued, despite their strong analyst ratings. You might like what we've put in our list.
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
The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share
We first looked for small cap stocks. We next screened for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). From here, we then looked for companies that are trading at a discount (P/S<1)(P/CFO<10). We did not screen out any sectors.
Do you think these small-cap stocks deserve to trade higher? Use our list to help with your own analysis.
1) Sunrise Senior Living Inc. (SRZ)
|Industry:||Long-Term Care Facilities|
Sunrise Senior Living Inc. has a Analysts' Rating of 1.00, a Price/Sales Ratio of 0.30, and a Price/Cash Flow Ratio of 8.34. The short interest was 13.05% as of 06/18/2012. Sunrise Senior Living, Inc. provides senior living services in the United States, Canada, and the United Kingdom. It offers a range of personalized senior living services, including independent living, assisted living, care for individuals with Alzheimer's and other forms of memory loss, nursing, and rehabilitative care services. The company also provides medication management and reminiscence neighborhoods.
2) Cumulus Media Inc. (NASDAQ:CMLS)
|Industry:||Broadcasting - Radio|
Cumulus Media Inc. has a Analysts' Rating of 1.50, a Price/Sales Ratio of 0.64, and a Price/Cash Flow Ratio of 14.89. The short interest was 6.74% as of 06/18/2012. Cumulus Media Inc., together with its subsidiaries, owns and operates commercial radio stations in the United States. The company engages in the sale of local, regional, and national advertising for broadcast on its radio stations. As of December 31, 2011, it owned or operated approximately 570 radio stations in 120 media markets; operated radio networks serving approximately 4,500 affiliates; and provided sales and marketing services for 7 radio stations.
3) Deluxe Corp. (NYSE:DLX)
Deluxe Corp. has a Analysts' Rating of 1.30, a Price/Sales Ratio of 0.83, and a Price/Cash Flow Ratio of 20.38. The short interest was 14.94% as of 06/18/2012. Deluxe Corporation, together with its subsidiaries, provides printed products, forms, and marketing solutions to small businesses and financial institutions primarily in the United States, Canada, Europe, and South America. The company offers checks; printed forms, including billing forms, work orders, job proposals, purchase orders, invoices, and personnel forms, as well as computer forms, deposit tickets, and check registers; and accessories and other products, such as envelopes, office supplies, stamps, and labels, as well as retail packaging supplies and checkbook covers. It also provides marketing solutions, which include Web design, hosting and other Web services, logo design, search engine marketing, and digital printing services for the sales and marketing needs of small businesses, business cards, greeting cards, brochures, and apparel; and customer acquisition programs and marketing communications services, and package insert programs. In addition, the company offers fraud protection services; payroll services; and financial institution profitability, regulatory, and compliance programs.
4) Metropolitan Health Networks Inc. (MDF)
|Industry:||Health Care Plans|
Metropolitan Health Networks Inc. has a Analysts' Rating of 1.40, a Price/Sales Ratio of 0.75, and a Price/Cash Flow Ratio of 11.82. The short interest was 3.95% as of 06/18/2012. Metropolitan Health Networks, Inc., through its subsidiaries, engages in the operation of provider services network (PSN) in the United States. Its PSN provides and manages the healthcare services to Medicare advantage and Medicaid beneficiaries in Florida. As of December 31, 2011, the company operated the PSN through its 33 primary care practices and 1 oncology practice, as well as through contracts with approximately 450 independent primary care practices; and served approximately 63,400 participating customers on a risk basis and 8,300 participating customers on a non-risk basis.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.