6 Undervalued Small Caps With Strong Sources Of Profitability

by: Kapitall

Do you prefer searching for stocks that appear to be trading below their fair value? We ran a screen with that perspective in mind.

We began by screening the small-cap sector for stocks that appear highly undervalued, with PEG below 1 and P/FCF below 15.

Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:


= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,

  • Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Tool provided by Kapitall (www.kapitall.com).

Do you think these stocks should be trading higher? Use this list as a starting point for your own analysis.

List sorted by PEG.

1. Nelnet Inc. (NYSE:NNI): Focuses on providing fee-based processing services, and education-related products and services in the areas of loan financing, loan servicing, payment processing, and enrollment services. Market cap at $1.14B, most recent closing price at $24.13. PEG at 0.34. P/FCF at 4.09. MRQ net profit margin at 27.22% vs. 26.55% y/y. MRQ sales/assets at 0.006 vs. 0.006 y/y. MRQ assets/equity at 22.077 vs. 25.154 y/y.

2. PDL BioPharma, Inc. (NASDAQ:PDLI): Engages in the management of antibody humanization patents and royalty assets, which consist of Queen et al. Market cap at $1.03B, most recent closing price at $7.33. PEG at 0.39. P/FCF at 8.46. MRQ net profit margin at 58.38% vs. 57.31% y/y. MRQ sales/assets at 0.485 vs. 0.43 y/y. MRQ assets/equity at -1.613 vs. -0.968 y/y.

3. Express Inc. (NYSE:EXPR): Operates specialty retail stores in the United States. Market cap at $1.51B, most recent closing price at $16.90. PEG at 0.52. P/FCF at 9.24. MRQ net profit margin at 8.48% vs. 7.49% y/y. MRQ sales/assets at 0.564 vs. 0.562 y/y. MRQ assets/equity at 2.692 vs. 4.975 y/y.

4. DFC Global Corp. (NASDAQ:DLLR): Provides retail financial services to unbanked and under-banked consumers, and small businesses. Market cap at $889.07M, most recent closing price at $20.22. PEG at 0.75. P/FCF at 9.44. MRQ net profit margin at 11.67% vs. 7.94% y/y. MRQ sales/assets at 0.153 vs. 0.127 y/y. MRQ assets/equity at 3.618 vs. 5.611 y/y.

5. Dice Holdings, Inc. (NYSE:DHX): Provides online recruiting and career development services. Market cap at $490.75M, most recent closing price at $7.90. PEG at 0.76. P/FCF at 9.36. MRQ net profit margin at 19.5% vs. 17.25% y/y. MRQ sales/assets at 0.152 vs. 0.134 y/y. MRQ assets/equity at 1.607 vs. 1.615 y/y.

6. Power-One Inc. (NASDAQ:PWER): Designs, manufactures, and markets power conversion and power management solutions for the renewable energy (RE), communications infrastructure, and other technology markets. Market cap at $726.17M, most recent closing price at $5.94. PEG at 0.78. P/FCF at 5.06. MRQ net profit margin at 14.53% vs. 12.17% y/y. MRQ sales/assets at 0.388 vs. 0.375 y/y. MRQ assets/equity at 1.716 vs. 1.776 y/y.

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.

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