Some thrill seekers jump out of airplanes, while others speed around race tracks at high speeds. And then there are those that invest in small caps. Small-cap stocks can offer investors huge growth opportunities for their portfolios, but can also expose investors to new levels of risk. One strategy for minimizing that risk is to seek out small caps that won't stay small for much longer - those that are projected to grow over the long term. Keeping this idea in mind, we are focusing on small caps that not only have strong growth projections, but that also look undervalued according to their fundamentals. We arrived at a short list of stocks that merit more research.
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.
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
The Price/Book Value Ratio is a great price-multiple valuation metric to find companies that could be potentially undervalued or overvalued. If a firm has a Price/Book Value Ratio of less than 1, it is stated to be trading below "break up" value. A lower P/BV Ratio can indicate a potentially mispriced company or indicate that something is fundamentally wrong with it.
We first looked for small cap stocks. We then looked for companies that are considered high-growth, with 5-year projected EPS growth above 25%. We next screened for businesses that are trading at low price-multiple valuations (P/CFO<10)(P/BV<1). We did not screen out any sectors.
Do you think these small-cap stocks have a strong outlook? Use this list as a starting-off point for your own analysis.
1) Cninsure Inc. (CISG)
Cninsure Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 33.90%, a Price/Cash Flow Ratio of 0.95, and a Price/Book Value Ratio of 0.80. The short interest was 3.37% as of 06/22/2012. Cninsure Inc., an insurance intermediary company, provides insurance brokerage and agency, and insurance claims adjusting services in the People's Republic of China. The company distributes property and casualty and life insurance products underwritten by various insurance companies. It sells automobile insurance, individual accident insurance and homeowner insurance products primarily to individual customers; commercial property insurance, cargo insurance, hull insurance, liability insurance, and construction insurance products to institutional customers; and life insurance products, including individual whole life insurance, term life insurance, endowment life insurance, education annuity, and health insurance, as well as universal insurance and group life insurance primarily to individuals under 50 years of age.
2) Coeur d'Alene Mines Corporation (CDE)
Coeur d'Alene Mines Corporation has a 5-Year Projected Earnings Per Share Growth Rate of 47.39%, a Price/Cash Flow Ratio of 10.20, and a Price/Book Value Ratio of 0.73. The short interest was 6.23% as of 06/22/2012. Coeur d'Alene Mines Corporation, together with its subsidiaries, engages in the ownership, operation, exploration, and development of silver and gold mining properties primarily located in the United States, Mexico, Bolivia, Argentina, and Australia. Its properties include the San Bartolome silver mine in Bolivia; the Palmarejo silver-gold mine in Mexico; the Kensington gold mine in Alaska; and the Rochester silver-gold mine in Nevada. The company owns and operates the Martha silver-gold mine in Argentina, as well as owns a non-operating interest in a silver-base metal mine in Australia.
3) Box Ships Inc. (TEU)
Box Ships Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 49.00%, a Price/Cash Flow Ratio of 2.21, and a Price/Book Value Ratio of 0.69. The short interest was 0.08% as of 06/22/2012. Box Ships Inc., a shipping company, engages in the seaborne transportation of containers worldwide. It owns and operates 7 containerships with a total capacity of approximately 33,000 twenty-foot equivalent units. The company was founded in 2010 and is based in Voula, Greece.
*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.