5 Undervalued Small Cap Stocks For Value Investors

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Includes: KBH, KELYA, SCHL, SMCI, SPOK
by: Benjamin Clark

Summary

KBH, SPOK, KELYA, SMCI, and SCHL are all rated as suitable for the Enterprising Investor following the ModernGraham approach.

All five are found to be significantly undervalued according to the ModernGraham valuation model.

The five companies all have a market cap under $2 billion.

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've screened the 700+ companies reviewed by ModernGraham to select five small cap undervalued companies for value investors.

Each company has been determined to be suitable for either the Defensive Investor or the Enterprising Investor according to the ModernGraham approach. Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk.

KB Home (NYSE:KBH)

KB Home is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $-0.72 in 2013 to an estimated $2.2 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.52% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into KB Home revealed the company was trading below its Graham Number of $25.21. The company pays a dividend of $0.1 per share, for a yield of 0.6% Its PEmg (price over earnings per share - ModernGraham) was 7.47, which was below the industry average of 28.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its net current asset value (NCAV) of $8.5.

Spok Holdings, Inc. (NASDAQ:SPOK)

Spok Holdings, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.08 in 2012 to an estimated $2.83 for 2016. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.96% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Spok Holdings, Inc. revealed the company was trading below its Graham Number of $38.13. The company pays a dividend of $0.5 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share - ModernGraham) was 6.58, which was below the industry average of 68.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its net current asset value (NCAV) of $4.56.

Kelly Services, Inc. (NASDAQ:KELYA)

Kelly Services, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.1 in 2013 to an estimated $1.8 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Kelly Services, Inc. revealed the company was trading below its Graham Number of $30.13. The company pays a dividend of $0.28 per share, for a yield of 1.3% Its PEmg (price over earnings per share - ModernGraham) was 11.99, which was below the industry average of 21.9, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its net current asset value (NCAV) of $5.19.

Super Micro Computer, Inc. (NASDAQ:SMCI)

Super Micro Computer, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, and poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.64 in 2013 to an estimated $1.42 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 5.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Super Micro Computer, Inc. revealed the company was trading above its Graham Number of $21.83. The company does not pay a dividend. Its PEmg (price over earnings per share - ModernGraham) was 18.85, which was below the industry average of 38.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its net current asset value (NCAV) of $10.02.

Scholastic Corp (NASDAQ:SCHL)

Scholastic Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.58 in 2013 to an estimated $2.86 for 2017. This level of demonstrated earnings growth outpaces the market's implied estimate of 3.89% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Scholastic Corp revealed the company was trading above its Graham Number of $35.99. The company pays a dividend of $0.6 per share, for a yield of 1.3% Its PEmg (price over earnings per share - ModernGraham) was 16.28, which was above the industry average of 8.41. Finally, the company was trading above its net current asset value (NCAV) of $13.16.

Disclosure: I/we 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.

Additional disclosure: See a list of my current holdings on ModernGraham.com. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer on ModernGraham.com.

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