While finding a bargain can be thrilling, it is important to maintain a level head when considering a purchase, especially in the case of investments. Stocks at the small cap level that are trading below their perceived value offer substantial growth opportunities for the investor. One way to employ discernment before investing is to scrutinize liquidity. When a company has strong liquidity, it has the cash reserves on hand to fund future growth and move up to the next level. For your review, we present a list of small cap stocks that appear to be offered at a discount and have cash on hand.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus, using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is "better" (cheaper) and a higher ratio is "worse" (expensive) -- a PEG ratio of 1 means the company is fairly priced.
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 lets an investor know how much the investment community is willing to pay for every dollar's 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 dollar's 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. To be clear, these are general guidelines used by the investment community, not hard rules.
Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
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 companies that are trading at a discount when considering the company growth rate (PEG Ratio < 1)(P/S<1). Next, we then screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these small-cap stocks should be priced higher? Use our screened list as a starting point for your own analysis.
1) OmniVision Technologies Inc. (OVTI)
|Industry||Semiconductor - Integrated Circuits|
|Price/Earnings to Growth Ratio||0.92|
OmniVision Technologies, Inc. engages in designing, developing, and marketing semiconductor image-sensor devices worldwide. The company primarily offers CameraChip image sensors, which are single-chip solutions that integrate various functions, such as image capture, image processing, color processing, signal conversion, and output of a processed image or video stream for use in various consumer and commercial mass-market applications; and CameraCube imaging devices that are image sensors with integrated wafer-level optics. It also provides companion chips used to connect its image sensors to various interfaces, including the universal serial bus and other industry standard interfaces; and companion digital signal processors that perform compression in standardized still photo and digital video formats.
2) Newpark Resources Inc. (NR)
|Industry||Oil & Gas Equipment & Services|
|Price/Earnings to Growth Ratio||0.86|
Newpark Resources, Inc. provides various products and services primarily to the oil and gas exploration industry. It operates in three segments: Fluids Systems and Engineering, Mats and Integrated Services, and Environmental Services. The Fluids Systems and Engineering segment provides drilling fluids products and technical services for technical drilling projects involving complex subsurface conditions, such as horizontal directional, geologically deep, or deep water drilling. This segment also offers completion services and equipment rental services; and sells barite and other industrial minerals. The Mats and Integrated Services segment provides composite mat rentals, well site construction, and related well site services to exploration and production customers. This segment also manufactures and sells DuraBase composite mat systems for use in its domestic and international rental operations. The Environmental Services segment provides onshore and offshore drilling waste management; and reclamation services. This segment also processes and disposes waste generated by oil and gas customers; and receives and disposes non-hazardous industrial waste principally from generators, including refiners, manufacturers, service companies, and industrial municipalities.
3) Vishay Intertechnology Inc. (VSH)
|Industry||Semiconductor - Broad Line|
|Price/Earnings to Growth Ratio||0.85|
Vishay Intertechnology, Inc. designs, manufactures, and supplies discrete semiconductors and passive components in the United States and internationally. The company's semiconductor products include MOSFETs, such as low-and medium-voltage TrenchFET MOSFETs, high-voltage planar MOSFETs, high voltage Super Junction MOSFETs, power integrated circuits, and integrated function power devices; diodes comprising rectifiers, small signal diodes, protection diodes, thyristors/silicon-controlled rectifiers, and power modules; and optoelectronic components, including infrared (IR) emitters and detectors, IR remote control receivers, optocouplers, solid-state relays, optical sensors, light-emitting diodes, seven-segment displays, and IR data transceiver modules. These semiconductor components are used for various functions, including power control, power conversion, power management, signal switching, signal routing, signal blocking, signal amplification, two-way data transfer, one-way remote control, and circuit isolation.
4) Finish Line Inc. (FINL)
|Industry||Specialty Retail, Other|
|Price/Earnings to Growth Ratio||0.92|
The Finish Line, Inc., together with its subsidiaries, operates as a mall-based specialty retailer in the United States. It operates Finish Line stores that offer performance and athletic casual shoes, as well as apparel and accessories for men, women, and kids. The company also sells merchandise through its Web site, finishline.com.
*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.