We all want assurances when we make an investment that we are not throwing our money away. This is especially critical when considering investments with small cap stocks as the risk tends to be measurably increased. Experienced investors hone in on a company's liquidity as a trait that can provide reassurance. Without it, resorting to debt and other tactics that compromise infrastructure and long term viability may be the only options. From this perspective, we selected small cap sized companies with ample cash reserves. To provide further credibility, they all have earning trends that point to financial acuity. We think the small-cap stocks listed below will pique your interest.
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).
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.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
We first looked for small-cap stocks. We next screened for businesses that have a substantial amount of cash on hand (Current Ratio>2) (Quick Ratio>2). We then screened for businesses that have shown strong bottom line growth over the last year (1-year fiscal EPS growth rate>10%) (Net Margin [TTM]>10%). We did not screen out any sectors.
Do you think these small-cap stocks will outperform? Use our list to help with your own analysis.
1) Globus Medical, Inc. (GMED)
|Industry||Medical Appliances & Equipment|
|Earnings Per Share Growth Rate||12.77%|
Globus Medical, Inc., a medical device company, focuses on the design, development, and commercialization of products that promote healing in patients with spine disorders. It offers approximately 100 innovative fusion and disruptive technology products that address an array of spinal pathologies, anatomies, and surgical approaches. Globus Medical, Inc. was founded in 2003 and is based in Audubon, Pennsylvania.
2) Endeavour Silver Corp. (EXK)
|Earnings Per Share Growth Rate||169.73%|
Endeavour Silver Corp., a mid-cap silver mining company, focuses on the growth of its silver production, reserves, and resources in Mexico and Chile. The company has three producing silver mines in Mexico, the Guanacevi Mine in the state of Durango, and the Bolaitos and El Cubo Mines in the state of Guanajuato. The company was founded in 1981 and is headquartered in Vancouver, Canada.
3) Tejon Ranch Co. (TRC)
|Earnings Per Share Growth Rate||254.29%|
Tejon Ranch Co., together with its subsidiaries, engages in the real estate development and agribusiness activities in the United States. The company operates in three segments: Commercial/Industrial Real Estate Development and Services, Resort/Residential Real Estate Development, and Farming. The company was founded in 1936 and is based in Lebec, California.
4) Sun Hydraulics Corp. (SNHY)
|Industry||Industrial Equipment & Components|
|Earnings Per Share Growth Rate||74.64%|
Sun Hydraulics Corporation, together with its subsidiaries, designs, manufactures, and sells screw-in hydraulic cartridge valves and manifolds used in hydraulic systems to industrial and mobile customers worldwide. The company offers various screw-in hydraulic cartridge valves, including electrically actuated and non-electrically actuated products; manifolds that are machined to create threaded cavities and channels and channels; integrated fluid power packages, which consist of multiple cartridge valves assembled into a custom designed manifold; and electronic controllers that manage the function of electrically actuated valves. Sun Hydraulics Corporation was founded in 1970 and is based in Sarasota, Florida.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 11/02/2012.