Companies at the small cap level face a lot of pressure to grow the business, and grow it rather quickly. So it is understandable that many companies resort to leveraging assets to provide more funds to chase growth opportunities. Sometimes it works, but often it becomes a burden in the long run. Finding small cap stocks that have kept their debt ratios manageable is what we were after in our search today. We focused on consumer stocks and came up with a short list of companies that in addition to having minimal debt, have managed to build up generous cash reserves. These traits bode well for a company that plans to grow. Review the summaries and graphs below to find out more about the small cap consumer stocks we found.
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 consumer stocks. From here, we then looked for companies that have maintained a sound capital structure (D/E Ratio<.1). We then looked for businesses that operate with little to no long term debt (Long Term D/E Ratio<.1). We next screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2).
Do you think these small-cap stocks should be priced higher? Use our screened list as a starting point for your own analysis.
1) Dorman Products, Inc. (DORM)
|Long Term Debt/Equity Ratio||0.00|
Dorman Products, Inc. supplies automotive replacement parts, fasteners, and service line products primarily for the automotive aftermarket. The company offers approximately 128,000 products comprising original equipment dealer parts, which include intake manifolds, exhaust manifolds, oil cooler lines, window regulators, radiator fan assemblies, power steering pulleys, and harmonic balancers; and replacement parts, such as window handles and switches, door hardware, interior trim parts, headlamp aiming screws and retainer rings, radiator parts, battery hold-down bolts and repair kits, valve train parts, and power steering filler caps.
It also provides application specific and general automotive hardware, such as body hardware, general automotive fasteners, oil drain plugs, and wheel hardware; a selection of electrical connectors, wires, tools, testers, and accessories; and a line of home hardware and home organization products designed for retail merchandisers. In addition, the company offers a brake and clutch program; remanufactured automotive replacement parts, such as transfer case modules and instrument clusters; and heavy duty aftermarket parts for class 4-8 heavy vehicles, including coolant tubes, door handles and other body parts, fluid reservoirs, headlights and lighting, hood components, window regulators, and wiper transmissions.
It sells its products under the OE Solutions, HELP!, AutoGrade, FirstStop, Conduct-Tite!, Pik-A-Nut, and HD Solutions brand names through automotive aftermarket retailers; national, regional, and local warehouse distributors; specialty markets; and salvage yards in the United States, Mexico, Europe, the Middle East, Asia, and Canada. The company, formerly known as R&B, Inc., was founded in 1978 and is headquartered in Colmar, Pennsylvania.
2) La-Z-Boy Inc. (LZB)
|Industry||Home Furnishings & Fixtures|
|Long Term Debt/Equity Ratio||0.02|
La-Z-Boy Incorporated manufactures, markets, imports, distributes, and retails upholstery products, accessories, and casegoods furniture products under the La-Z-Boy brand name primarily in the United States and Canada. It operates in three segments: Upholstery, Casegoods, and Retail. The Upholstery segment manufactures, imports, and sells upholstered furniture, such as recliners and motion furniture, sofas, loveseats, chairs, ottomans, and sleeper sofas directly to La-Z-Boy Furniture Galleries stores, operators of Comfort Studios, dealers, and other independent retailers. The Casegoods segment manufactures, imports, markets, and distributes casegoods furniture, including bedroom sets, dining room sets, entertainment centers, and accent pieces, as well as coordinated upholstered furniture primarily to dealers and other independent retailers.
The Retail segment sells upholstered furniture, as well as casegoods and other accessories to end consumers through the retail network. This segment operates 85 own La-Z-Boy Furniture Galleries stores located in 9 markets ranging from the Midwest to the east coast of the United States, including southeastern Florida and southern California. As of April 28, 2012, its network included 312 La-Z-Boy Furniture Galleries stores and 553 Comfort Studios. The company was formerly known as La-Z-Boy Chair Company and changed its name to La-Z-Boy Incorporated in 1996. La-Z-Boy Incorporated was founded in 1927 and is based in Monroe, Michigan.
3) Black Diamond, Inc. (BDE)
|Long Term Debt/Equity Ratio||0.07|
Black Diamond, Inc., together with its subsidiaries, engages in designing, manufacturing, and marketing outdoor performance products for climbing, mountaineering, backpacking, skiing, and other outdoor recreation activities in the United States and internationally. It provides climbing products, including belay/rappel devices, bouldering products, carabiners and quickdraws, chalk, chalk bags, climbing packs, crampons, crash pads, dogbones and runners, harnesses, ice axes and piolets, ice and rock protection devices, and various other climbing accessories; and skiing products comprising backpacks, winter packs for skiing and snowboarding, bindings, boots, poles, skis, skins, snow gloves, snow packs, and snow safety devices. The company also offers mountaineering line products, such as mountaineering backpacks for alpine expeditions; backpacks for backcountry excursions, overnight trips, and day hikes; and lifestyle packs, travel luggage, bivy sacks, rain sacks, gaiters, gloves, headlamps, lights, tents, trekking poles, and various other hiking and mountaineering accessories.
In addition, it provides hydration packs for trail running and cycling; travel and lifestyle products, which include duffle bags, messenger bags, and small bags; pouches to carry electronics and other accessories; and various apparel and accessory products. The company sells its products under the Black Diamond and Gregory brands to mountain climbers, winter outdoor enthusiasts, backpackers and campers, cyclists, top endurance trail runners, and outdoor-inspired consumers through sporting goods and outdoor recreation stores, retail stores, and consumer catalogs, as well as online at blackdiamondequipment.com. Black Diamond, Inc. is headquartered in Salt Lake City, Utah.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/04/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.