Because of their size, companies at the small cap level can fly under our radar, especially when they are not in an attention-grabbing sector like tech. But when looking specifically at companies that have had strong gains in earnings, we find ourselves intrigued. Looking at these profit generating firms may make us more curious about the company, or about the sector. It also can be helpful to look at these companies for insight as to what businesses are thriving in the current economic climate. With this in mind, we developed a list of small cap stocks that have pulled in impressive profits, and that have had the discipline to develop a cash reserve. We think you will find these small cap stocks worthy of further consideration.
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, and may indicate that the company 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).
Return on Assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. Additionally, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.
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 screened for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then looked for businesses with strong profitability (ROA >10%)(1-year fiscal EPS growth rate>10%). We did not screen out any sectors.
Do you think these small cap stocks are worth more than their current valuations? Use our list to help with your own analysis.
1) ATRION Corp. (ATRI)
|Industry||Medical Instruments & Supplies|
|Return on Assets||14.87%|
|Earnings Per Share Growth Rate||24.21%|
Atrion Corporation, together with its subsidiaries, develops and manufactures fluid delivery devices, and ophthalmic and cardiovascular products primarily for medical applications in the United States, Canada, and internationally. The company was founded in 1944 and is headquartered in Allen, Texas.
2) Dorman Products, Inc. (DORM)
|Return on Assets||15.44%|
|Earnings Per Share Growth Rate||15.04%|
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. The company, formerly known as R&B, Inc., was founded in 1978 and is headquartered in Colmar, Pennsylvania.
3) FutureFuel Corp. (FF)
|Industry||Chemicals - Major Diversified|
|Return on Assets||10.36%|
|Earnings Per Share Growth Rate||35.91%|
FutureFuel Corp. engages in the manufacture and sale of diversified chemicals and biobased products in the United States. The company operates in two segments, Chemicals and Biofuels. The company was formerly known as Viceroy Acquisition Corporation and changed its name to FutureFuel Corp. in October 2006. FutureFuel Corp. was incorporated in 2005 and is headquartered in Clayton, Missouri.
4) CVR Partners, LP (UAN)
|Return on Assets||22.31%|
|Earnings Per Share Growth Rate||297.27%|
CVR Partners, LP engages in the production, distribution, and marketing of nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate. The company was founded in 2007 and is based in Sugar Land, Texas. CVR Partners, LP is a subsidiary of CVR Energy, Inc.
5) First Cash Financial Services Inc. (FCFS)
|Return on Assets||18.96%|
|Earnings Per Share Growth Rate||36.01%|
First Cash Financial Services, Inc. operates retail-based pawn and consumer finance stores in the United States and Mexico. The company was founded in 1988 and is based in Arlington, Texas.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/17/2012.