For investors who like to get in on a stock before everyone catches on, small-caps tend to offer the greatest potential for growth. This is especially true in the healthcare industry due to the innovation and research that is driving product development. New treatments and improved devices are coming on line all the time. To find the most promising companies in this sector we looked for two key components - profitability and generous levels of cash reserves. If stocks with these traits pique your interest, you will probably like the list of healthcare companies that we came up with today.
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).
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
We first looked for small cap healthcare stocks. We next screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We next screened for businesses with strong profit margins (1-year operating margin>15%)(Net Margin [TTM]>10%).
Do you think these small-cap stocks are in strong positions for future growth? Use our list along with your own analysis.
1) ATRION Corp. (ATRI)
|Industry:||Medical Instruments & Supplies|
ATRION Corp. has a Current Ratio of 9.23, a Quick Ratio of 6.23, an Operating Profit Margin of 30.95%, and a Net Margin of 21.11%. The short interest was 3.12% as of July 29, 2012. Atrion Corporation, together with its subsidiaries, develops and manufactures fluid delivery devices, and ophthalmic and cardiovascular products primarily for medical applications in the United States, Canada, and internationally.
The company's fluid delivery products comprise luer syringe check valves and one-way valves; tubing clamps; and specialized intravenous sets for use in anesthesia and oncology applications. Its cardiovascular products include MPS2 Myocardial Protection System that delivers essential fluids and medications to the heart during open-heart surgery; cardiac surgery vacuum relief valves; silicone vessel loops for retracting and occluding vessels in minimally invasive surgical procedures; and inflation devices for balloon catheter dilation, stent deployment, and fluid dispensing, as well as products used in heart bypass surgery to make a precision opening in the heart for attachment of the bypass vessels. The company's ophthalmic products comprise contact lens disinfection cases; and a line of balloon catheters used in the treatment of nasolacrimal duct obstruction in children and adults.
2) SciClone Pharmaceuticals, Inc. (SCLN)
|Industry:||Drug Manufacturers - Other|
SciClone Pharmaceuticals, Inc. has a Current Ratio of 5.31, a Quick Ratio of 4.96, an Operating Profit Margin of 22.77%, and a Net Margin of 22.03%. The short interest was 9.04% as of July 29, 2012. SciClone Pharmaceuticals, Inc. provides therapies for the treatment of oncology, infectious diseases, cardiovascular, urological, respiratory, and central nervous system disorders in the People's Republic of China and internationally.
Its principal product is ZADAXIN, which is used for the treatment of hepatitis B and hepatitis C viruses, and certain cancers, as well as for use as a vaccine adjuvant, and as a chemotherapy adjuvant for cancer patients with weakened immune systems. ZADAXIN has approval in approximately 30 countries, which include China, the Pacific Rim, Latin America, eastern Europe, and the Middle East.
3) Hi Tech Pharmacal Co. Inc. (HITK)
|Industry:||Drugs - Generic|
Hi Tech Pharmacal Co. Inc. has a Current Ratio of 5.89, a Quick Ratio of 4.74, an Operating Profit Margin of 30.79%, and a Net Margin of 21.02%. The short interest was 6.26% as of July 29, 2012. Hi Tech Pharmacal Co., Inc., a specialty pharmaceutical company, engages in developing, manufacturing, and marketing prescription, over-the-counter (OTC), and nutritional products in the United States. The company offers a range of products for various disease states, including glaucoma, asthma, bronchial disorders, dermatological disorders, allergies, pain, stomach, and oral care. Its generic pharmaceutical products include oral solutions and suspensions, topical creams and ointments, and nasal sprays.
4) Meridian Bioscience Inc. (VIVO)
Meridian Bioscience Inc. has a Current Ratio of 5.65, a Quick Ratio of 3.69, an Operating Profit Margin of 26.38%, and a Net Margin of 17.59%. The short interest was 14.98% as of July 29, 2012. Meridian Bioscience, Inc., a life science company, engages in the development, manufacture, sale, and distribution of diagnostic test kits primarily for gastrointestinal, foodborne, viral, respiratory, and parasitic infectious diseases.
5) China Kanghui Holdings (KH)
|Industry:||Medical Appliances & Equipment|
China Kanghui Holdings has a Current Ratio of 5.03, a Quick Ratio of 4.14, an Operating Profit Margin of 39.22%, and a Net Margin of 37.35%. The short interest was 10.85% as of July 29, 2012. China Kanghui Holdings, through its subsidiaries, engages in the development, manufacture, and sale of orthopedic implants and associated instruments for trauma, spine, cranial maxillofacial, and craniocerebral.
The company offers 36 product series of orthopedic implants and associated instruments for trauma and spine indications under the Kanghui and Libeier brand names. Its trauma products used in the surgical treatment of bone fractures include a range of nails, plates and screws, and cranial maxillofacial plate and screw systems; and spine products used in the surgical treatment of spine disorders consist of screws, meshes, interbody cages, and fixation systems.
6) Osiris Therapeutics, Inc. (OSIR)
Osiris Therapeutics, Inc. has a Current Ratio of 9.88, a Quick Ratio of 9.79, an Operating Profit Margin of 26.08%, and a Net Margin of 26.21%. The short interest was 19.44% as of July 29, 2012. Osiris Therapeutics, Inc., a stem cell company, focuses on the development and marketing of therapeutic products to treat various medical conditions in the inflammatory, cardiovascular, orthopedic, and wound healing markets. It operates in two segments, Therapeutics and Biosurgery. The Therapeutics segment focuses on developing biologic stem cell drug candidates from a readily available and non-controversial source, adult bone marrow.
7) ICU Medical, Inc. (ICUI)
|Industry:||Medical Instruments & Supplies|
ICU Medical, Inc. has a Current Ratio of 9.84, a Quick Ratio of 8.61, an Operating Profit Margin of 20.92%, and a Net Margin of 14.34%. The short interest was 19.18% as of July 29, 2012. ICU Medical, Inc. engages in the development, manufacture, and sale of medical technologies used in infusion therapy, oncology, and critical care applications.
The company's product line includes custom infusion systems, closed delivery systems for hazardous drugs, needleless infusion connectors, catheters, and cardiac monitoring systems. Its products enhance patient outcomes by preventing bloodstream infections, protecting healthcare workers and patients from exposure to infectious diseases or hazardous drugs, and monitoring the cardiac output of critical care patients.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.