Experienced small cap investors know the delicate balance between growth and risk that stocks at this level present. To find true growth opportunities and reduce as much risk as possible, it is key to focus on profitability. Strong profits demonstrate that a company is on the right track. Further, when these companies also have substantial cash reserves, they have the funding to fuel future growth. If profitable companies with high liquidity pique your interest, you will probably like the list of small cap stocks 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.
Return on Assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.
We first looked for small cap stocks. From here, we then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). Next, we then screened for businesses with strong profit margins (1-year operating margin>15%)(ROA > 10%). We did not screen out any sectors.
Do you think these small-cap stocks will continue to see such strong profitability? Use our list along with your own analysis.
- Hittite Microwave Corporation (HITT)
|Industry:||Semiconductor - Integrated Circuits|
Hittite Microwave Corporation has a Current Ratio of 27.25, a Quick Ratio of 24.17, a Operating Profit Margin of 42.63%, and a Return on Assets of 15.73%. The short interest was 6.42% as of 08/18/2012. Hittite Microwave Corporation designs, develops, and sells integrated circuits (ICS), modules, subsystems, and instrumentation products for radio frequency (RF) microwave and millimeterwave applications worldwide. The company's IC products include amplifiers, digital and voltage variable attenuators, broadband time delays, automatic gain control products, clocks and timing products, comparators, cross point switches, data converters, direct current power conditioning and power management products, dielectric resonator oscillators, frequency dividers and detectors, frequency multipliers, digital logic products, intermediate frequency signal processing products, interface, and limiting amplifiers. Its IC products also comprise mixers and converters, modulators and demodulators, multiplexers/demultiplexers, optical modulator drivers, passives, phase lock loops, phase lock loops with integrated voltage controlled oscillators, phase shifters, power detectors, sensors, switches, Successive detection logarithmic video amplifiers, transimpedance amplifiers, tunable filters, variable gain amplifiers, and voltage controlled and phase locked oscillators.
- Sun Hydraulics Corp. (SNHY)
|Industry:||Industrial Equipment & Components|
Sun Hydraulics Corp. has a Current Ratio of 9.10, a Quick Ratio of 8.08, an Operating Profit Margin of 27.35%, and a Return on Assets of 22.94%. The short interest was 6.90% as of 08/18/2012. Sun Hydraulics Corporation, together with its subsidiaries, designs, manufactures, and sells screw-in hydraulic cartridge valves and manifolds used in hydraulic systems to industrial and mobile customers worldwide. The company offers various screw-in hydraulic cartridge valves, including electrically actuated and non-electrically actuated products; manifolds that are machined to create threaded cavities and channels and channels; integrated fluid power packages, which consist of multiple cartridge valves assembled into a custom designed manifold; and electronic controllers that manage the function of electrically actuated valves. Its screw-in hydraulic cartridge valves and manifolds control force, speed, and motion as integral components in fluid power systems, and are used in construction, agricultural, mining, and fire and rescue and other utility equipment, as well as in automation machinery, presses, plastics machinery. The company sells its products primarily through independent fluid power distributors, as well as directly to other companies in the hydraulics industry and original equipment manufacturers.
- Endeavour Silver Corp. (EXK)
Endeavour Silver Corp. has a Current Ratio of 11.24, a Quick Ratio of 9.09, an Operating Profit Margin of 33.55%, and a Return on Assets of 11.19%. The short interest was 1.14% as of 08/18/2012. Endeavour Silver Corp., a mid-cap silver mining company, focuses on the growth of its silver production, reserves, and resources in Mexico and Chile. The company has three producing silver mines in Mexico, the Guanacevi Mine in the state of Durango, and the Bolaitos and El Cubo Mines in the state of Guanajuato. It also holds interests in exploration projects in Mexico, including the Guadalupe Y Calvo project, Parral project, Arroyo Seco project, the San Sebastian project, Panuco project, and Lourdes project.
- Aurizon Mines Ltd. (AZK)
Aurizon Mines Ltd. has a Current Ratio of 7.00, a Quick Ratio of 6.56, an Operating Profit Margin of 33.80%, and a Return on Assets of 13.12%. The short interest was 0.74% as of 08/18/2012. Aurizon Mines Ltd. engages in the acquisition, exploration, development, and production of gold properties in North America. The company's principal properties include the Casa Berardi gold mine and the Joanna gold project, both located in the Abitibi region of northwestern Quebec.
- Cognex Corporation (CGNX)
|Industry:||Scientific & Technical Instruments|
Cognex Corporation has a Current Ratio of 7.38, a Quick Ratio of 6.88, an Operating Profit Margin of 26.07%, and a Return on Assets of 11.40%. The short interest was 3.23% as of 08/18/2012. Cognex Corporation provides machine vision products that capture and analyze visual information to automate tasks primarily in manufacturing processes. It operates in two divisions, Modular Vision Systems and Surface Inspection Systems. The Modular Vision Systems division develops, manufactures, and markets modular vision systems that are used to automate the manufacture of discrete items, such as cellular phones, aspirin bottles, and automobile wheels by locating, identifying, inspecting, and measuring them during the manufacturing process.
- QLogic Corp. (QLGC)
|Industry:||Semiconductor - Integrated Circuits|
QLogic Corp. has a Current Ratio of 8.12, a Quick Ratio of 7.84, an Operating Profit Margin of 20.87%, and a Return on Assets of 12.47%. The short interest was 8.35% as of 08/18/2012. QLogic Corporation designs and supplies network infrastructure products that provide, enhance, and manage computer data communication. It designs and develops application-specific integrated circuits, adapters, and switches based on fiber channel, Internet small computer systems interface (iSCSI), Fiber Channel over Ethernet (FCOE), and Ethernet technologies. The company offers host products, including fiber channel adapters; iSCSI adapters; FCOE converged network adapters; and 10Gb Ethernet adapters. It also provides network products, such as blade, edge, and high-port count modular-chassis fiber channel switches; fiber channel virtualized pass-through modules; universal access point switches; enhanced Ethernet pass-through modules; and storage routers.
- Vaalco Energy Inc. (EGY)
|Industry:||Independent Oil & Gas|
Vaalco Energy Inc. has a Current Ratio of 8.26, a Quick Ratio of 8.17, an Operating Profit Margin of 60.91%, and a Return on Assets of 13.49%. The short interest was 10.11% as of 08/18/2012. VAALCO Energy, Inc., an independent energy company, together with its subsidiaries, engages in the acquisition, exploration, development, and production of crude oil and natural gas. The company owns producing properties and conducts exploration activities as an operator of consortiums internationally in Gabon and Angola, as well as conducts exploration activities as a non-operator in the British North Sea. It also operates three shale properties in the United States located in Montana and Texas; and owns minor interests in conventional production activities as a non-operator in Brazos County, Texas, Pickens County, Alabama, and in the Ship Shoal area of the Gulf of Mexico.
*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.