When considering investing in a company, especially at the less developed small-cap stage, most investors want to see a generous cash reserve. If a company doesn't have one, it begs the obvious question of where is the money going to come from when opportunity knocks or an unexpected financial crunch occurs. A high level of liquidity is key to setting the stage for growth and success. With this in mind, we ran a scan to find small-cap stocks that have a sizable amount of cash on hand. We further reduced the list to include those that also appear to be trading below their true value. Check out the list of small-cap stocks below to see if any spark your interest.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the earnings forecast instead. While this number might not be as accurate because it uses the forecast, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.
The Price/Book Value Ratio is a great price-multiple valuation metric to find companies that could be potentially undervalued or overvalued. If a firm has a Price/Book Value Ratio of less than 1 it is stated to be trading below "break up" value. A lower P/BV Ratio can indicate a potentially mispriced company or indicate that something is fundamentally wrong with it.
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 with a low price-multiple premium (forward P/E<10) (P/BV<1). We then screened for businesses that have a substantial amount of cash on hand (Current Ratio>2) (Quick Ratio>2). We did not screen out any sectors.
Do you think these small-cap stocks will offer healthy returns? Use this list as a starting-off point for your own analysis.
1) Photronics Inc. (PLAB)
|Industry||Semiconductor - Integrated Circuits|
|Forward Price/Earnings Ratio||8.39|
|Price/Book Value Ratio||0.62|
Photronics, Inc. engages in the manufacture and sale of photomasks primarily in the United States, Europe, and Asia. Photomasks are high precision photographic quartz plates containing microscopic images of electronic circuits, which are used in the manufacture of semiconductors and flat panel displays; and used as masters to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, various flat panel displays, and other types of electrical and optical components.
The company sells its photomasks to semiconductor designers, manufacturers, foundries, and other high performance electronics manufacturers through its sales personnel and customer service representatives. Photronics, Inc. was founded in 1969 and its headquarters is in Brookfield, Connecticut.
2) ChipMOS TECHNOLOGIES (Bermuda) LTD. (IMOS)
|Industry||Semiconductor Equipment & Materials|
|Forward Price/Earnings Ratio||5.60|
|Price/Book Value Ratio||0.96|
ChipMOS TECHNOLOGIES (Bermuda) LTD., through its subsidiaries, provides semiconductor testing and assembly services for LCD and other flat-panel display driver semiconductors, and memory and logic/mixed-signal products. The company offers a range of back-end testing services for memory and logic/mixed-signal semiconductors that include engineering testing consisting of software program development, electrical design validation, reliability analysis, and failure analysis; wafer probing that involves visual inspection and electrical testing of the processed wafer for defects; laser repairing of memory products; burn-in testing to screen out unreliable products; top marking; final testing; and final inspection and packing.
Its assembly services comprise wafer lapping, die saw, die attach, wire bonding, molding, marking, dejunking and trimming, electrical plating, ball mount and reflow, and forming/singulation. The company also provides leadframe-based and organic substrate-based package assembly services for memory and logic/mixed-signal semiconductors; and gold bumping, testing, and assembly services for LCD and other flat-panel display driver semiconductors by employing tape carrier package, chip-on-film, and chip-on-glass technologies. In addition, it offers drop shipment services, including assembly in customer-approved and branded boxes; and software engineering services consisting of test program development, conversion, and optimization, as well as related hardware design. The company's tested and assembled semiconductors are used in personal computers; graphics applications, such as game consoles and personal digital assistants; communications equipment, including cellular handsets; consumer electronic products; and display applications, such as flat-panel displays. It operates primarily in Taiwan, as well as in the United States, Singapore, Korea, Japan, and Hong Kong. The company was founded in 1986 and is based in Hsinchu, Taiwan.
3) OM Group Inc. (OMG)
|Forward Price/Earnings Ratio||7.44|
|Price/Book Value Ratio||0.49|
OM Group, Inc. operates as a diversified specialty chemicals and materials company worldwide. The company operates in four segments: Magnetic Technologies, Advanced Materials, Specialty Chemicals and Battery Technologies. The Magnetic Technologies segment develops, manufactures, and distributes industrial-use magnetic products and systems for electronic equipment markets, including the renewable energy, automotive systems, construction, and industrial sectors.
The Advanced Materials segment manufactures inorganic products for mobile energy storage, renewable energy, automotive systems, construction and mining, and industrial end markets; and resells cobalt metal. The Specialty Chemicals segment develops, produces, and supplies chemicals for the electronic and industrial applications; and photo masks to produce semiconductors and related products. The Battery Technologies segment provides batteries, battery management systems, battery-related research, and energetic devices for defense, aerospace, and medical markets. OM Group, Inc. was founded in 1991 and its headquarters is in Cleveland, Ohio.
4) Iridium Communications Inc. (IRDM)
|Industry||Diversified Communication Services|
|Forward Price/Earnings Ratio||7.48|
|Price/Book Value Ratio||0.74|
Iridium Communications Inc. provides mobile voice and data communications services through satellites to businesses, the U.S. and foreign governments, non-governmental organizations, and consumers worldwide. It offers postpaid mobile voice and data satellite communications services; prepaid mobile voice satellite communications services; broadband data services; machine-to-machine services for sending and receiving data from fixed and mobile assets in remote locations to a central monitoring station; and other services, including inbound connections from the public switched telephone networks, short message services, subscriber identity module, activation, customer reactivation, and other peripheral services.
The company also provides voice and data solutions comprising personnel tracking devices; asset tracking devices for equipment, vehicles, and aircraft; aircraft and submarine communications applications; specialized communications solutions for high-value individuals; mobile communications and data devices for the military and intelligence community, such as secure satellite handsets, as well as offers voice, data, messaging, and paging services; and maintenance services for the department of defense's dedicated gateway.
In addition, it provides satellite handsets, Wi-Fi accessories, voice and data modems, broadband data devices, and machine-to-machine data devices; and various accessories for its devices that include batteries, holsters, earbuds, portable auxiliary antennas, antenna adaptors, USB data cables, and charging units, as well as offers engineering and support services. The company sells its products and services to commercial end-users through service providers, value-added resellers, and value-added manufacturers. As of March 31, 2012, it had approximately 544,000 billable subscribers. The company was founded in 2000 and its headquarters is in McLean, Virginia.
Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/03/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.