One way to minimize risk when investing in small-cap stocks is to select companies that have a high level of liquidity. This is particularly important when considering businesses that are quickly expanding. Ample cash reserves are an important component to making sure growth stays on track. Today we have sifted through small cap stocks to find those with great growth projections and more than enough cash on hand. Take a look at these companies to see if any pique your interest.
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 with projected high growth, measured by 5-year projected EPS growth above 25%. We then looked for companies 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 hold value that has yet to be priced in? Use our list to help with your own analysis.
1) Bebe Stores, Inc. (BEBE)
Bebe Stores, Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 30.50%, a Current Ratio of 5.29, and a Quick Ratio of 4.57. The short interest was 3.85% as of July 27, 2012. BEBE engages in the design, development, and production of women's apparel and accessories. Its products include a range of separates, tops, dresses, active wear, and accessories in career, evening, casual, and active lifestyle categories. The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names targeting 21- to 34-year-old women.
2) Dycom Industries Inc. (DY)
Dycom Industries Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 42.23%, a Current Ratio of 3.18, and a Quick Ratio of 2.92. The short interest was 3.91% as of July 27, 2012. Dycom Industries, Inc. provides specialty contracting services in the United States and Canada. It offers engineering services, including the design of service area concept boxes, terminals, buried and aerial drops, transmission and central office equipment, administration of feeder and distribution cable pairs, and fiber cable routing and design for telephone companies; and make-ready studies, strand mapping, field walk-out, computer-aided radio frequency design and drafting, and fiber cable routing and design for cable television multiple system operators.
The company also provides civil and tower construction, lines and antenna installation, and foundation and equipment pad construction for wireless carriers, as well as equipment and material fabrication and site testing services; and installs and maintains customer premise equipment, including digital video recorders, set top boxes, and modems for cable television system operators.
3) Silicon Image, Inc. (SIMG)
|Industry:||Semiconductor - Broad Line|
Silicon Image, Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 40.00%, a Current Ratio of 3.85, and a Quick Ratio of 3.63. The short interest was 4.30% as of July 27, 2012. Silicon Image, Inc. provides wireless and wired connectivity solutions that enable the distribution and presentation of high-definition (HD) content for mobile, consumer electronics (CE), and personal computer (PC) markets. The company delivers its technology via semiconductor and intellectual property products and services. It offers high-definition multimedia interface (HDMI) and mobile high-definition link (MHL) transmitters for mobile devices, such as smartphones and tablets; and MHL-to-HDMI bridges for docking stations and adapters connecting MHL mobile products with HDMI-enabled digital televisions (DTVs) and displays.
4) Teavana Holdings Inc. (TEA)
Teavana Holdings Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 31.67%, a Current Ratio of 4.53, and a Quick Ratio of 2.45. The short interest was 14.62% as of July 27, 2012. Teavana Holdings, Inc., together with its subsidiaries, operates as a specialty retailer of loose-leaf teas, tea wares, and other tea-related merchandise in the United States, Canada, and Mexico.
The company offers approximately 100 varieties of loose-leaf teas; and a selection of fresh-brewed teas. It also provides tea wares and other tea-related merchandise, such as handcrafted cast-iron, clay, and ceramic tea pots; tea cups and mugs; tea accessories; tea decor and media products; and tea foods.
*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.