If growth opportunities excite you, searching for stocks at the small cap level is an apparent place to start. But precautions to minimize risk is always necessary with small caps, as these stocks tend to be more volatile than those in the mid and large cap range. Some ways to do this are to find the stocks that are growing steadily and show signs of continuing that trend. To find stocks of that nature, we searched specifically for those that have EPS growth rates of over 25%. We then further reduced the list to only include those that appear to be trading below perceived market value. Take a look at the summary below of small cap stocks to start your investigation.
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 Price/Book Value Ratio is a great price-multiple valuation metric to find companies that could be potentially undervalued or overvalued. If a firm has a Price/Book Value Ratio of less than 1 it is stated to be trading below "break up" value. A lower P/BV Ratio can indicate a potentially mispriced company or indicate that something is fundamentally wrong with it.
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. We then looked for companies that have expected earnings per share growth of more than 25 percent for the next five years(5-year projected EPS Growth Rate>25%). We then looked for companies that are undervalued from a price-multiple valuation standpoint (P/BV<1)(forward P/E<10). We did not screen out any sectors.
Do you think these small-cap stocks should have higher valuations? Use our list along with your own analysis.
1) Coeur d'Alene Mines Corporation (CDE)
Coeur d'Alene Mines Corporation has a 5-Year Projected Earnings Per Share Growth Rate of 50.07%, a Price/Book Value Ratio of 0.88, and a Forward Price/Earnings Ratio of 7.97. The short interest was 6.23% as of 08/18/2012. Coeur d'Alene Mines Corporation, together with its subsidiaries, engages in the ownership, operation, exploration, and development of silver and gold mining properties primarily located in the United States, Mexico, Bolivia, Argentina, and Australia. Its properties include the San Bartolome silver mine in Bolivia; the Palmarejo silver-gold mine in Mexico; the Kensington gold mine in Alaska; and the Rochester silver-gold mine in Nevada. The company owns and operates the Martha silver-gold mine in Argentina, as well as owns a non-operating interest in a silver-base metal mine in Australia.
2) Box Ships Inc. (TEU)
Box Ships Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 49.00%, a Price/Book Value Ratio of 0.46, and a Forward Price/Earnings Ratio of 5.71. The short interest was 0.14% as of 08/18/2012. Box Ships Inc., a shipping company, engages in the seaborne transportation of containers worldwide. It owns and operates 7 containerships with a total capacity of approximately 33,000 twenty-foot equivalent units. The company was founded in 2010 and is based in Voula, Greece.
3) Molycorp, Inc. (MCP)
|:Industry||Industrial & MetalsMinerals|
Molycorp, Inc. has a 5-Year Projected Earnings Per Share Growth Rate of 49.00%, a Price/Book Value Ratio of 0.66, and a Forward Price/Earnings Ratio of 3.62. The short interest was 18.77% as of 08/18/2012. Molycorp, Inc., a development stage company, engages in the production and sale of rare earth oxides in the western hemisphere. Its rare earth products include oxides, metals, alloys, and magnets for various inputs in existing and emerging applications comprising clean energy technologies, multiple high-tech uses, defense applications, and water treatment technology. The company primarily owns and operates the Molycorp Mountain Pass facility, an open-pit mine containing rare earth deposits outside of China located in San Bernardino County, California.
4) Grupo Financiero Galicia S.A. (GGAL)
Grupo Financiero Galicia S.A. has a 5-Year Projected Earnings Per Share Growth Rate of 46.00%, a Price/Book Value Ratio of 0.74, and a Forward Price/Earnings Ratio of 2.42. The short interest was 10.68% as of 08/18/2012. Grupo Financiero Galicia S.A. operates as a financial services holding company in Argentina. It provides a range of financial services through a distribution platform among private-sector financial institutions in Argentina; life, retirement, and property and casualty insurance products, as well as insurance brokerage services; and deposit certificates and warrants. The company also offers loans to national and provincial governments, banks, and local financial institutions; and mortgage loans, pledge loans, credit card loans, personal loans, export prefinancing loans, and short-term placements, as well as advances and promissory notes.
*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.