Profitability is always a plus when considering small cap stocks. When a company consistently generates profits over time, it is an indicator that growth is on the horizon. We ran a screen for profitable small-cap stocks that also look undervalued according to their fundamentals. We arrived at a diverse list of stocks that warrant more research.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
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 Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.
We first looked for small cap stocks. From here, we then looked for companies that have strong profitability (1-year fiscal EPS Growth Rate>10%)(1-year operating margin>15%). From here, we then looked for companies that are trading at a discount (P/S<1)(forward P/E<10). We did not screen out any sectors.
Do you think these small-cap stocks deserve to trade higher? Use this list as a starting-off point for your own analysis.
1) Banco Macro S.A. (BMA)
|Industry:||Foreign Regional Banks|
Banco Macro S.A. has a Earnings Per Share Growth Rate of 38.79%, an Operating Profit Margin of 37.99%, a Price/Sales Ratio of 0.60, and a Forward Price/Earnings Ratio of 2.35. The short interest was 1.71% as of 08/03/2012. Banco Macro S.A. provides banking products and services to individuals, entrepreneurs, companies, and corporate customers in Argentina. It offers various retail products and services, such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans, mortgage loans, car loans, overdrafts, credit-related services, home and car insurance coverage, tax collection, utility payments, automated teller machines (ATMs), and money transfer services. The company also provides personal loans, document discounts, mortgages, overdrafts, pledged loans, and credit card loans to retail customers.
2) NorthStar Realty Finance Corp. (NRF)
|Industry:||REIT - Retail|
NorthStar Realty Finance Corp. has a Earnings Per Share Growth Rate of 39.81%, a Operating Profit Margin of 29.98%, a Price/Sales Ratio of 0.83, and a Forward Price/Earnings Ratio of 5.04. The short interest was 8.62% as of 08/03/2012. NorthStar Realty Finance Corp. operates as a real estate investment trust in the United States. It invests in real estate debt business, which acquires, originates, and structures debt investments secured primarily by income-producing real estate properties; real estate securities business that invests in commercial real estate debt securities, including commercial mortgage backed securities, REIT unsecured debt, and credit tenant loans; and net lease properties business, which acquires properties that are primarily net leased to corporate tenants. The company has elected to be taxed as a REIT and it would not be subject to federal income tax, provided it distributes at least 90% of its taxable income to its shareholders.
3) Spansion Inc. (CODE)
|Industry:||Semiconductor- Memory Chips|
Spansion Inc. has a Earnings Per Share Growth Rate of 238.98%, a Operating Profit Margin of 25.54%, a Price/Sales Ratio of 0.57, and a Forward Price/Earnings Ratio of 6.63. The short interest was 4.22% as of 08/03/2012. Spansion Inc. engages in the design, development, manufacture, and sale of flash memory semiconductors worldwide. It offers flash memory solutions for microprocessors, controllers, and other programmable semiconductors that run applications in a range of electronic systems, including automotive and industrial, computing and communications, and consumer and gaming. The company's product designs are primarily based on its proprietary two-bit-per-cell MirrorBit technology.
4) DFC Global Corp. (DLLR)
DFC Global Corp. has a Earnings Per Share Growth Rate of 1321.31%, a Operating Profit Margin of 34.45%, a Price/Sales Ratio of 0.81, and a Forward Price/Earnings Ratio of 7.45. The short interest was 13.48% as of 08/03/2012. DFC Global Corp. provides retail financial services to unbanked and under-banked consumers, and small businesses. Its primary products and services include short-term consumer loans, single-payment consumer loans, check cashing services, secured pawn loans, and gold buying services. The company also provides other retail services and products comprising money order and money transfer products, foreign currency exchange, VISA and MasterCard branded reloadable debit cards, electronic tax filing, bill payment, and prepaid local and long-distance phone services.
5) Danaos Corporation (DAC)
Danaos Corporation has a Earnings Per Share Growth Rate of 109.08%, a Operating Profit Margin of 45.13%, a Price/Sales Ratio of 0.90, and a Forward Price/Earnings Ratio of 5.51. The short interest was 0.05% as of 08/03/2012. Danaos Corporation engages in the ownership and operation of containerships, as well as chartering of its vessels to liner companies in Greece and internationally. As of June 29, 2012, it had a fleet of 64 containerships aggregating 363,049 TEU. The company was formerly known as Danaos Holdings Limited and changed its name to Danaos Corporation in October 2005.
6) Tronox Incorporated (TROX)
Tronox Incorporated has a Earnings Per Share Growth Rate of 50181.99%, a Operating Profit Margin of 23.20%, a Price/Sales Ratio of 0.21, and a Forward Price/Earnings Ratio of 6.01. The short interest was 14.55% as of 08/03/2012. Tronox Incorporated produces and markets titanium products in the Americas, Europe, and the Asia-Pacific. The company offers titanium dioxide pigment, which is used in consumer products, such as paint, plastic, and certain specialty products. In addition, it manufactures and markets electrolytic and specialty chemical products, such as electrolytic manganese dioxide, sodium chlorate for pulp and paper manufacture, and boron-based and other specialty chemicals serving the semi-conductor, pharmaceutical and igniter industries.
7) Bridgepoint Education, Inc. (BPI)
|Industry:||Education & Training Services|
Bridgepoint Education, Inc. has a Earnings Per Share Growth Rate of 41.34%, an Operating Profit Margin of 25.15%, a Price/Sales Ratio of 0.52, and a Forward Price/Earnings Ratio of 3.45. The short interest was 16.10% as of 08/03/2012. Bridgepoint Education, Inc. provides postsecondary education services. It offers associate's, bachelor's, master's, and doctoral programs in the disciplines of business, education, psychology, social sciences, and health sciences. The company offers its programs at campuses of its Ashford University located in Clinton, Iowa; and University of the Rockies located in Colorado Springs, Colorado, as well as through online.
*Company profiles were sourced from Google Finance and Yahoo Finance. 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.