Small-cap stocks can offer investors huge growth opportunities for their portfolios, but can also add new levels of risk. One strategy for reducing 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 focused on small caps that not only have strong growth projections, but that also have strong cash reserves, possibly further fueling their growth. We arrived at a short list of stocks that warrant 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 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).
We first looked for small cap stocks. We then looked for companies that have high future earnings per share growth forecasts(5-year projected EPS Growth Rate>25%). Next, we then screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these small-cap stocks are undervalued? Use our list to help with your own analysis.
1) TiVo Inc. (TIVO)
TiVo Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 40.00%, a Current Ratio of 4.50, and a Quick Ratio of 4.30. The short interest was 10.31% as of 07/08/2012. TiVo Inc., together with its subsidiaries, provides technology and services for television solutions, including digital video recorders (DVRs) and connected televisions in the United States and internationally. The company offers subscription-based TiVo service, which enhances home entertainment by providing consumers with a way to record, watch, and control live television, as well as to receive videos, pictures, and movies from cable, broadcast, and broadband sources in one interface. It also provides a platform for advertising and audience research measurement services.
2) MakeMyTrip Limited (MMYT)
MakeMyTrip Limited has a 5-Year Projected Earnings Per Share Growth Rate of 79.95%, a Current Ratio of 2.82, and a Quick Ratio of 2.78. The short interest was 2.67% as of 07/08/2012. MakeMyTrip Limited, an online travel company, provides travel products and solutions in India and the United States. Its products and services include air tickets, hotels, packages, rail tickets, bus tickets, car hire, and ancillary travel requirements, such as travel insurance and visa processing. The company, through its Website, makemytrip.
3) STAAR Surgical Company (STAA)
|Industry:||Medical Instruments & Supplies|
STAAR Surgical Company has a 5-Year Projected Earnings Per Share Growth Rate of 37.50%, a Current Ratio of 3.08, and a Quick Ratio of 2.19. The short interest was 6.43% as of 07/08/2012. STAAR Surgical Company, together with its subsidiaries, engages in the design, development, manufacture, and sale of implantable lenses for the cataracts and refractive surgery. It offers intraocular lenses (IOL) that include silicone Toric IOL, which is used in cataract surgery to treat preexisting astigmatism; Preloaded Injector, a three-piece silicone or acrylic IOL preloaded into a single-use disposable injector; Aspheric IOLs that provide a clearer image than traditional spherical IOLs; and nanoFLEX IOL, a single-piece collamer aspheric IOL. The company also provides implantable collamer lenses (ICL) comprising VISIAN ICL and VISIAN Toric ICL to treat refractive disorders, such as myopia, hyperopia, and astigmatism.
4) Syneron Medical Ltd. (ELOS)
|Industry:||Medical Appliances & Equipment|
Syneron Medical Ltd. has a 5-Year Projected Earnings Per Share Growth Rate of 35.00%, a Current Ratio of 3.05, and a Quick Ratio of 2.61. The short interest was 0.62% as of 07/08/2012. Syneron Medical Ltd., together with its subsidiaries, engages in the research, manufacture, development, marketing, and sale of aesthetic medical products worldwide. It develops products based on its proprietary Electro-Optical Synergy technology, which uses the synergy between electrical energy and optical energy to provide aesthetic medical treatments. The company's products target a range of non-invasive aesthetic medical procedures, including hair removal, wrinkle reduction, rejuvenation of the skin's appearance through the treatment of superficial benign vascular and pigmented lesions, acne treatment, treatment of leg veins, treatment for the temporary reduction in the appearance of cellulite and thigh circumference, ablation and resurfacing of the skin and laser-assisted lipolysis, and skin cooling, as well as relieving aches, pains, and stiffness in muscles.
5) Intrepid Potash, Inc. (IPI)
Intrepid Potash, Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 45.00%, a Current Ratio of 6.32, and a Quick Ratio of 5.14. The short interest was 8.10% as of 07/08/2012. Intrepid Potash, Inc. produces and markets muriate of potash and langbeinite under the Trio brand name primarily in the United States. Its langbeinite, sulfate of potash magnesia, is a low-chloride potassium fertilizer with the additional benefits of sulfate and magnesium, providing a multi‑nutrient product. The company also offers by-products, such as salt, magnesium chloride, and metal recovery salts.
6) Clean Energy Fuels Corp. (CLNE)
Clean Energy Fuels Corp. has a 5-Year Projected Earnings Per Share Growth Rate of 31.20%, a Current Ratio of 3.20, and a Quick Ratio of 2.86. The short interest was 30.63% as of 07/08/2012. Clean Energy Fuels Corp., together with its subsidiaries, provides natural gas as an alternative fuel for vehicle fleets in the United States and Canada. The company designs, builds, operates, and maintains fueling stations, as well as supplies compressed natural gas (CNG) and liquefied natural gas (LNG) fuel for medium and heavy-duty vehicles. Its CNG is used in automobiles, light to medium-duty vehicles, refuse trucks, and transit buses as an alternative to gasoline and diesel.
7) MAKO Surgical Corp. (MAKO)
|Industry:||Medical Appliances & Equipment|
MAKO Surgical Corp. has a 5-Year Projected Earnings Per Share Growth Rate of 40.00%, a Current Ratio of 4.01, and a Quick Ratio of 2.92. The short interest was 55.20% as of 07/08/2012. MAKO Surgical Corp., a medical device company, markets its advanced robotic arm solution and orthopedic implants for orthopedic procedures in the United States and internationally. The company offers MAKOplasty, a restorative surgical solution that enables orthopedic surgeons to treat patient specific osteoarthritic disease. It also provides robotic arm interactive orthopedic system (RIO) consisting of a tactile robotic arm utilizing an integrated bone cutting instrument; and a patient specific visualization component, which offers pre-operative and intra-operative guidance to the orthopedic surgeon, enabling tissue sparing bone removal, and accurate implant insertion and alignment.
*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.