If you are curious about up and coming stocks, small caps may be where you tend to start your search for new investments. After all, at this level, growth opportunities are a dime a dozen. To find those with promise, we searched for small cap stocks with the key asset of liquidity. A strong cash reserve is critical for small cap companies, as these funds will drive future growth. To further the intrigue, we only included stocks that appear to be trading below market value. We think you will find our list as a helpful place to start your own analysis.
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 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 Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share.
We first looked for small cap stocks. Then we screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). Next, we looked for companies that are trading at a discount (P/S<1)(P/CFO<10). We did not screen out any sectors.
Do you think these small-cap stocks are worth more than the market currently says? Use our screened list as a starting point for your own analysis.
1) Grupo Simec S.A.B. de C.V. (SIM)
|Industry||Steel & Iron|
|Price/Cash Flow Ratio||3.61|
Grupo Simec, S.A.B. de C.V., together with its subsidiaries, engages in the manufacture, processing, and distribution of special bar quality (SBQ) steel and structural products primarily in the United States, Mexico, and Canada. Its steel products include I-beams; channels; structural and commercial angles; hot rolled bars, such as round, square, and hexagonal rods; flat bars; rebars; cold finished bars; wire rods; semi-finished tube rounds; and other semi-finished trade products. The company's SBQ products are used in various engineered end-user applications, including axles, hubs, and crankshafts for automobiles and light trucks, machine tools, and off-highway equipment; and structural steel products are used in the non-residential construction market and other construction applications.
2) Basic Energy Services, Inc. (BAS)
|Industry||Oil & Gas Equipment & Services|
|Price/Cash Flow Ratio||4.87|
Basic Energy Services, Inc. provides various well site services to oil and natural gas drilling and producing companies in the United States. Its Completion and Remedial Services segment provides pressure pumping services, such as cementing, acidizing, fracturing, coiled tubing, nitrogen, and pressure testing; rental and fishing tools; coiled tubing; snubbing services; thru-tubing; cased-hole wireline services; and underbalanced drilling in low pressure and fluid sensitive reservoirs. This segment operates 222 pressure pumping units.
3) Cash America International, Inc. (CSH)
|Price/Cash Flow Ratio||16.94|
Cash America International, Inc. provides specialty financial services to individuals in the United States and Mexico. The company provides pawn lending, consumer loans, and check cashing, as well as other ancillary services, such as money orders, wire transfers, and pre-paid debit cards. Its consumer loan portfolio includes short-term single payment loans, line of credit products, longer-term multi-payment installment loans, credit services, and participation interests purchased from third parties in the micro line of credit (MLOC) services channel.
4) PharMerica Corporation (PMC)
|Price/Cash Flow Ratio||31.65|
Pharmerica Corporation operates as an institutional pharmacy services company in the United States. It offers services to healthcare facilities and provides management pharmacy services to hospitals. The company purchases, repackages, and dispenses prescription and non-prescription pharmaceuticals in accordance with physician orders and delivers such medication to healthcare facilities for administration to individual patients and residents.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on August 19, 2012.