Small-cap stocks can offer investors higher growth opportunities than large-cap alternatives, although this comes with a fair share of added risk. This is especially true in the highly competitive healthcare space. One way to cut down on the risk of investing in small cap healthcare stocks is to focus on the companies that have amassed sizeable war chests of cash, and that are slated for growth over the next year. The point is that cash reserves spent wisely could both accelerate and magnify that future growth, which could translate to higher ROI. If stocks of this nature sound interesting, you will probably like the short list we came up with.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
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 healthcare stocks. Next, we then screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We next screened for businesses that have expected earnings per share growth of more than 25 percent for next year(1-year projected EPS Growth Rate>25%).
Do you think these small-cap stocks are worth more than their current valuations? Use our list to help with your own analysis.
1) Antares Pharma Inc. (ATRS)
|Industry:||Medical Instruments & Supplies|
Antares Pharma Inc. has a Current Ratio of 4.44, a Quick Ratio of 4.27, and a 1-Year Projected Earnings Per Share Growth Rate of 566.70%. The short interest was 11.91% as of 06/22/2012. Antares Pharma Inc., a pharmaceutical company, engages in the development and marketing of self-injection pharmaceutical products and technologies, and topical gel-based products. It offers Vision/Tjet reusable needle-free injectors that deliver precise medication doses through high-speed pressurized liquid penetration of the skin without a needle; Vibex disposable pressure assisted auto injector devices that are used for the controlled pressure delivery of drugs into the body utilizing a spring power source; disposable pen injection systems, which are needle-based devices designed to deliver multiple drugs by injection through needles from multi-dose drug cartridges; and Advanced Transdermal Delivery (ATD) Gel System that penetrates the skin to deliver treatments. The company also provides Anturo, an oxybutynin gel product for the treatment of OAB; Elestrin, a transdermal estradiol gel for the treatment of moderate-to-severe vasomotor symptoms associated with menopause; and Nestragel, a contraceptive formulation product.
2) Avanir Pharmaceuticals (AVNR)
|Industry:||Drugs - Generic|
Avanir Pharmaceuticals has a Current Ratio of 4.40, a Quick Ratio of 4.38, and a 1-Year Projected Earnings Per Share Growth Rate of 51.10%. The short interest was 17.57% as of 06/22/2012. Avanir Pharmaceuticals, Inc., together with its subsidiaries, engages in acquiring, developing, and commercializing novel therapeutic products for the treatment of central nervous system disorders primarily in the United States. The company primarily offers NUEDEXTA, a unique proprietary combination of dextromethorphan and low-dose quinidine for the treatment of pseudobulbar affect.
3) Abaxis Inc. (ABAX)
Abaxis Inc. has a Current Ratio of 7.31, a Quick Ratio of 6.18, and a 1-Year Projected Earnings Per Share Growth Rate of 32.56%. The short interest was 6.29% as of 06/22/2012. Abaxis, Inc. develops, manufactures, markets, and sells portable blood analysis systems for use in veterinary or human patient-care setting to provide blood constituent measurements for clinicians worldwide. The company offers point-of-care blood chemistry analyzer, which consists of a compact portable analyzer and a series of single-use plastic discs, called reagent discs, containing all the chemicals required to perform a panel of up to 14 tests on human patients and 13 tests on veterinary patients. It markets the blood analysis system under the Piccolo Xpress and Piccolo Classic names in the medical market; and under the VetScan VS2 and VetScan Classic names in the veterinary market.
4) Auxilium Pharmaceuticals Inc. (AUXL)
|Industry:||Drug Related Products|
Auxilium Pharmaceuticals Inc. has a Current Ratio of 2.94, a Quick Ratio of 2.36, and a 1-Year Projected Earnings Per Share Growth Rate of 205.00%. The short interest was 9.20% as of 06/22/2012. Auxilium Pharmaceuticals, Inc., a specialty biopharmaceutical company, together with its subsidiaries, engages in developing and marketing pharmaceutical products primarily in the United States. It markets Testim, a testosterone gel for the treatment of hypogonadism; and XIAFLEX (collagenase clostridium histolyticum), an injectable collagenase enzyme for the treatment of Dupuytren's contracture in adult patients with a palpable cord. The company is also developing XIAFLEX, which is in Phase III clinical trial for the treatment of Peyronie's disease, in Phase IIa clinical trial for the treatment of Adhesive Capsulitis (frozen shoulder syndrome), and in Phase Ib clinical trial for the treatment of edematous fibrosclerotic panniculopathy indications.
*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.