For many investors, investing in small-caps is all about growth opportunities. But not all small-caps can make the leap to larger-cap status, and it's especially difficult when those companies are seriously leveraged. To find small caps that are well-positioned for growth, or at least free to spend their cash how they choose, be it on strategic acquisitions, tactical investments, or costly but innovative research and development. Today we screened for smaller companies that have two key properties: minimal debt, and relatively strong reserves of cash. These are the small caps that are the best off when it comes to making smart decisions with cash, which could lead to huge potential growth, rather than just paying back debt that they owe and running in place. If stocks with these traits pique your interest, you will like the list of small cap companies that we came up with today.
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
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).
We first looked for small cap stocks. We then looked for businesses that operate with little to no debt (D/E Ratio<.3). We then looked for businesses that have maintained a sound long term capital structure (Long Term D/E Ratio<.1). From here, we then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these small-cap stocks have strong fundamentals? Use our screened list as a starting point for your own analysis.
1) Fluidigm Corporation (NASDAQ:FLDM)
|Industry||Scientific & Technical Instruments|
|Long Term Debt/Equity Ratio||0.00|
Fluidigm Corporation develops, manufactures, and markets microfluidic systems for the life science, agricultural biotechnology (Ag-Bio), molecular diagnostics, and other markets. The company's proprietary microfluidic systems comprise instruments and consumables, including chips, assays, and other reagents. Its technology enables customers to perform and measure various biochemical reactions on samples smaller than the content of a single cell by utilizing minute volumes of reagents and samples; and rapid preparation of multiple samples in parallel for next generation DNA sequencing.
2) Shuffle Master Inc. (NASDAQ:SHFL)
|Industry||Recreational Goods, Other|
|Long Term Debt/Equity Ratio||0.09|
Shuffle Master, Inc. manufactures and distributes gaming devices, and operates inter-casino linked systems and slot routes. It leases, licenses, and sells its products. The company operates through four segments: Utility, Proprietary Table Games, Electronic Table Systems, and Electronic Gaming Machines.
3) Opko Health, Inc. (NYSEMKT:OPK)
|Industry||Medical Appliances & Equipment|
|Long Term Debt/Equity Ratio||0.00|
Opko Health, Inc., a pharmaceutical and diagnostics company, engages in the discovery, development, and commercialization of novel and proprietary technologies primarily in the United States, Chile, and Mexico. It develops a range of solutions, including molecular diagnostics tests, point-of-care tests, and proprietary pharmaceuticals and vaccines to diagnose, treat, and prevent various conditions. The company is developing molecular diagnostics tests to identify molecules or immunobiomarkers for Alzheimer's disease, non-small cell lung cancer, and pancreatic cancer, and other cancers; and point-of-care diagnostic test for prostate specific antigen.
4) WuXi PharmaTech (Cayman) Inc. (NYSE:WX)
|Industry||Drug Manufacturers - Major|
|Long Term Debt/Equity Ratio||0.00|
Wuxi PharmaTech (Cayman) Inc., through its subsidiaries, operates as a pharmaceutical, biotechnology, and medical device research and development outsourcing company primarily in the People's Republic of China and the United States. It operates in two segments, Laboratory Services and Manufacturing Services. The Laboratory Services segment offers synthetic chemistry, discovery biology, medicinal and analytical chemistry, DMPK/ADME, formulation process chemistry, cell line and bioprocess development, toxicology, safety pharmacology, clinical development, bioanalytical services, genomics, and research reagent production services for pharmaceutical, biotechnology, and medical device companies, as well as testing services for biologics, medical devices, and combination products.
5) Plantronics, Inc. (NYSE:PLT)
|Industry||Processing Systems & Products|
|Long Term Debt/Equity Ratio||0.08|
Plantronics, Inc., together with its subsidiaries, engages in the design, manufacture, and marketing of communications headsets, telephone headset systems, and accessories for the business and consumer markets under the Plantronics brand worldwide. It also offers specialty products, such as telephones for the hearing impaired, and other related products for people with special communication needs under the Clarity brand. The company designs its products for markets and applications, including offices, contact centers, mobile phones and smart phones, computer and gaming, residential, and other specialty applications.
6) Cavium, Inc. (NASDAQ:CAVM)
|Industry||Semiconductor - Broad Line|
|Long Term Debt/Equity Ratio||0.06|
Cavium, Inc. designs, develops, and markets semiconductor processors for intelligent and secure networks. Its semiconductor products enable customers to develop networking, wireless, storage, and electronic equipment. The company's products also include a suite of embedded security protocols, which enable unified threat management (UTM), secure connectivity, network perimeter protection, deep packet inspection, network virtualization, broadband gateways, third generation/fourth generation (3G/4G) wireless infrastructure, storage systems, wireless high-definition multimedia interface [HDMI] cable replacement, and embedded video applications.
7) K12, Inc. (NYSE:LRN)
|Industry||Education & Training Services|
|Long Term Debt/Equity Ratio||0.04|
K12 Inc., a technology-based education company, provides proprietary curriculum, software systems, and educational services for individualized learning for students in kindergarten through 12th grade (K12) primarily in the United States. The company's products include K12 Curriculum, which consists of online lessons, learning kits, and lesson guides; online school platform, a Web-based software platform that provides access to its online lessons, lesson planning, and scheduling tools, as well as its progress tracking tool and assessment tracking tools; and student administration management system, a proprietary student information system that stores student-specific data and is used for various functions, including enrolling students in courses, assigning progress marks and grades, tracking student demographic data, and generating student transcripts. It also offers student community tools that foster communication and interaction among families and school personnel.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/20/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.