When a stock at the small cap level is doing well in terms of generating steady profits, it may stir up some interest among potential investors. But when the same company also has substantial growth projections for the foreseeable future, then it may create genuine excitement. After all, investors generally seek out small cap stocks because of the great growth potential. Today, we ran a scan to find profitable small cap stocks with EPS growth rates above 25% for the next five years. We developed a short list of stocks that may speak to you.
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.
Return on Equity (ROE) is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
We first looked for small cap stocks. We then looked for companies that have high future earnings per share growth forecasts (5-year projected EPS Growth Rate>25%). We then looked for companies that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(1-year fiscal EPS growth rate>10%). We did not screen out any sectors.
Do you think these small-cap stocks will offer healthy returns? Please use our list to assist with your own analysis.
1) Gruma S.A.B. de CV (GMK)
|Industry||Processed & Packaged Goods|
|5-Year Projected Earnings Per Share Growth Rate||43.64%|
|Return on Equity||51.74%|
|Earnings Per Share Growth Rate||1120.71%|
Gruma, S.A.B. de C.V., through its subsidiaries, engages in the production and sale of corn flour, wheat flour, tortillas, and other related products.
2) Neurocrine Biosciences Inc. (NASDAQ:NBIX)
|Industry||Drug Manufacturers - Major|
|5-Year Projected Earnings Per Share Growth Rate||69.00%|
|Return on Equity||36.79%|
|Earnings Per Share Growth Rate||542.02%|
Neurocrine Biosciences, Inc. engages in the discovery, development, and commercialization of drugs for the treatment of neurological and endocrine-related diseases and disorders in the United States. It develops drugs for endometriosis, stress-related disorders, pain, tardive dyskinesia, uterine fibroids, diabetes, insomnia, and other neurological and endocrine-related diseases and disorders. The company's products in clinical development include Elagolix, a Phase II drug for endometriosis; Vesicular Monoamine Transporter 2 Inhibitor (VMAT2), a Phase II drug for movement disorders; CRF2 Peptide Agonist, a Phase II drug for cardiovascular diseases; CRF1 Antagonist, a Phase II drug for stress-related disorders; and Elagolix, a Phase II drug for uterine fibroids.
3) Krispy Kreme Doughnuts, Inc. (KKD)
|5-Year Projected Earnings Per Share Growth Rate||26.50%|
|Return on Equity||97.72%|
|Earnings Per Share Growth Rate||2039.81%|
Krispy Kreme Doughnuts, Inc. operates as a branded retailer and wholesaler of doughnuts, beverages, and treats and packaged sweets worldwide. The company's doughnuts products include the original glazed doughnut; cake doughnuts and crullers; and seasonal doughnuts, including hearts, pumpkins, footballs, eggs, and snowmen; as well as honeybuns, fruit pies, mini-crullers, and chocolate products. Its beverage products consist of drip coffees, coffee-based and non-coffee-based frozen drinks, juices, sodas, milks, water, frozen/blended beverages, and packaged and fountain beverages.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/21/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.