4 Small/Micro Cap Financials With Strong Profitability Trading On The Cheap

Includes: ART, BFR, CLMS, IBKR
by: ZetaKap

Financial stocks can be risky investments, depending on the company's management. One way to hone in on well managed companies is to look for those that hold strong track records of profitability, through the good times and the bad. Today, we ran a screen with these ideas in mind, while also looking for companies that currently look undervalued by different metrics, and we came up with a pretty interesting list.

The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.

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

The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share

The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share

We first looked for financial stocks. We then looked for companies with strong profit margins (1-year operating margin>15%)(Net Margin [TTM]>10%). We then looked for companies that are trading at a discount (P/S<1)(P/CFO<10). We did not screen out any market caps.

Do you think these stocks should be priced higher? Use this list as a starting-off point for your own analysis.

1) Calamos Asset Management Inc. (NASDAQ:CLMS)

Sector: Financial
Industry: Asset Management
Market Cap: $222.72M
Beta: 3.15

Calamos Asset Management Inc. has a Operating Profit Margin of 38.64%, a Net Margin of 44.79%, a Price/Sales Ratio of 0.64, and a Price/Cash Flow Ratio of 0.48. The short interest was 3.53% as of 06/27/2012. Calamos Asset Management Inc. is a publicly owned investment manager. The firm provides investment advisory services to individuals including high net worth individuals, and institutions. It also manages accounts for family offices and private foundations.

2) Artio Global Investors Inc. (NYSE:ART)

Sector: Financial
Industry: Asset Management
Market Cap: $199.26M
Beta: -

Artio Global Investors Inc. has a Operating Profit Margin of 34.41%, a Net Margin of 17.30%, a Price/Sales Ratio of 0.84, and a Price/Cash Flow Ratio of 4.01. The short interest was 10.88% as of 06/27/2012. Artio Global Investors, Inc. is a publicly owned asset management holding company. Through its subsidiary, the firm provides portfolio management and fund management services to its clients.

3) Interactive Brokers Group, Inc. (NASDAQ:IBKR)

Sector: Financial
Industry: Investment Brokerage - National
Market Cap: $664.56M
Beta: 0.80

Interactive Brokers Group, Inc. has a Operating Profit Margin of 48.39%, a Net Margin of 45.22%, a Price/Sales Ratio of 0.48, and a Price/Cash Flow Ratio of 0.43. The short interest was 2.17% as of 06/27/2012. Interactive Brokers Group, Inc. operates as an automated electronic broker and market maker. It engages in routing orders; and executing and processing trades in securities, futures, foreign exchange instruments, bonds, and mutual funds on approximately 100 electronic exchanges and trading venues worldwide. The company also provides bid and offer quotations on approximately 867,000 securities and futures products listed on electronic exchanges.

4) BBVA Banco Frances S.A. (NYSE:BFR)

Sector: Financial
Industry: Foreign Regional Banks
Market Cap: $572.13M
Beta: 1.67

BBVA Banco Frances S.A. has a Operating Profit Margin of 34.85%, a Net Margin of 20.59%, a Price/Sales Ratio of 0.61, and a Price/Cash Flow Ratio of 0.39. The short interest was 0.64% as of 06/27/2012. BBVA Banco Francs S.A., together with its subsidiaries, provides various financial services to corporations, medium and small companies, and individual customers in the Republic of Argentina. The company offers checking and savings accounts, time deposits, and investment accounts. It also provides short and long-term loans to companies, overdraft lines of credit, discounted instruments, loans to financial institutions and the governmental sector, collateral loans, and real estate mortgage, as well as consumer loans comprising credit card loans and other consumer loans.

*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.