Small-cap stocks tend to offer the greatest gains for those who are willing to be a bit ahead of the curve. Of course, investing in companies at this level can be risky. To minimize exposure, verifying profitability is a must. Another method for finding companies with merit is to measure liquidity. Companies with substantial funding have the resources to continue what they are doing, but on a grander scale. If companies that are profitable with high liquidity pique your interest, you will probably like the list of healthcare stocks that we came up with today.
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
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 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 the ability to meet current obligations using liquid assets).
We first looked for small-cap healthcare stocks. We then looked for businesses that have strong bottom line profitability (Net Margin [TTM] >10%)(1-year operating margin >15%). We then looked for companies that have strong liquidity (Current Ratio >2)(Quick Ratio >2).
Do you think these small-cap stocks should be trading higher? Use our list to help with your own analysis.
1) Meridian Bioscience Inc. (VIVO)
Meridian Bioscience Inc. has a Net Margin of 17.59%, an Operating Profit Margin of 26.38%, a Current Ratio of 5.65, and a Quick Ratio of 3.69. The short interest was 14.67% as of 07/31/2012. 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.
2) Hi-Tech Pharmacal Co. Inc. (HITK)
|Industry:||Drugs - Generic|
Hi-Tech Pharmacal Co. Inc. has a Net Margin of 21.02%, an Operating Profit Margin of 30.79%, a Current Ratio of 5.89, and a Quick Ratio of 4.74. The short interest was 5.98% as of 07/31/2012. 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.
3) China Kanghui Holdings (KH)
|Industry:||Medical Appliances & Equipment|
China Kanghui Holdings has a Net Margin of 37.35%, an Operating Profit Margin of 39.22%, a Current Ratio of 5.03, and a Quick Ratio of 4.14. The short interest was 11.06% as of 07/31/2012. 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.
4) SciClone Pharmaceuticals, Inc. (SCLN)
|Industry:||Drug Manufacturers - Other|
SciClone Pharmaceuticals, Inc. has a Net Margin of 22.03%, an Operating Profit Margin of 22.77%, a Current Ratio of 5.31, and a Quick Ratio of 4.96. The short interest was 9.03% as of 07/31/2012. 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.
5) ViroPharma Inc. (VPHM)
ViroPharma Inc. has a Net Margin of 22.45%, an Operating Profit Margin of 36.59%, a Current Ratio of 6.12, and a Quick Ratio of 5.57. The short interest was 14.19% as of 07/31/2012. ViroPharma Incorporated, a biotechnology company, develops and commercializes therapeutic products that address serious diseases in the United States and internationally. It focuses on developing products used by physician specialists or in hospital settings. The company markets and sells Cinryze, a C1 esterase inhibitor therapy for the routine prophylaxis against angioedema attacks in adolescent and adult patients with hereditary angioedema, a life-threatening genetic disorder; and Vancocin HCl capsule, an oral capsule formulation for the treatment of C. difficile-associated diarrhea (CDAD) and to treat enterocolitis caused by staphylococcus aureus, including methicillin-resistant strains.
6) Atrion Corp. (ATRI)
|Industry:||Medical Instruments & Supplies|
Atrion Corp. has a Net Margin of 21.11%, an Operating Profit Margin of 30.95%, a Current Ratio of 9.23, and a Quick Ratio of 6.23. The short interest was 3.00% as of 07/31/2012. 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.
7) Amsurg Corp. (AMSG)
Amsurg Corp. has a Net Margin of 24.06%, a Operating Profit Margin of 30.54%, a Current Ratio of 2.80, and a Quick Ratio of 2.55. The short interest was 4.08% as of 07/31/2012. Amsurg Corp., through its subsidiaries, engages in the development, acquisition, and operation of ambulatory surgery centers (ASC) in partnership with physicians in the United States. The company's surgery centers perform colonoscopy and other endoscopy procedures in the areas of gastroenterology; cataracts and retinal laser surgeries in the area of ophthalmology; and knee and shoulder arthroscopy and carpal tunnel repair in the area of orthopedics. As of December 31, 2011, it operated 228 ASCs in 35 states and the District of Columbia of the United States, including 146 centers for gastrointestinal endoscopy procedures, 36 centers for ophthalmology surgery procedures, 39 multi-specialty centers, and 7 centers for orthopaedic procedures.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.