Small companies can grow over time through smart investments, acquisitions, or heavy investment in R & D. Having cash on hand allows that to happen. Today we focus on small cap companies that have built up strong cash reserves, backed by their track records of profitability. We think you'll find our list pretty interesting.
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.
Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
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 stocks. We then looked for companies that have strong profitability (1-year fiscal EPS Growth Rate>10%)(ROE [TTM]>30%). From here, we then looked for companies that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.
Do you think these small-cap stocks deserve to trade higher? Please use our list to assist with your own analysis.
1) Nevsun Resources Ltd. (NYSEMKT:NSU)
Nevsun Resources Ltd. has a Earnings Per Share Growth Rate of 1128.70%, a Return on Equity of 46.34%, a Current Ratio of 6.91, and a Quick Ratio of 6.26. The short interest was 0.27% as of 06/27/2012. Nevsun Resources Ltd., a gold and base metal developer, together with its subsidiaries, engages in the exploration, development, extraction, processing, and reclamation of mineral properties in Africa. It produces gold, copper, silver, and zinc concentrates. The company's principal mineral property includes Bisha Mine, a gold, copper, and zinc deposit, which is located in Eritrea, northeast Africa.
2) Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI)
Spectrum Pharmaceuticals, Inc. has a Earnings Per Share Growth Rate of 184.84%, a Return on Equity of 49.60%, a Current Ratio of 3.18, and a Quick Ratio of 3.07. The short interest was 44.39% as of 06/27/2012. Spectrum Pharmaceuticals, Inc., a biotechnology company, engages in acquiring, developing, and commercializing prescription drug products primarily in the areas of hematology and oncology. It offers ZEVALIN, a prescribed form of cancer therapy which combines a source of radiation with an antibody; and FUSILEV for patients with osteosarcoma after high-dose methotrexate therapy, as well as to diminish the toxicity and counteract the effects of impaired methotrexate elimination or inadvertent overdose of folic acid antagonists. The company also develops apaziquone that is under Phase 3 clinical trials for non-muscle invasive bladder cancer; and belinostat, which is under Phase 2 registrational trial for relapsed or refractory peripheral T-cell lymphoma.
3) Gold Resource Corp (NYSEMKT:GORO)
Gold Resource Corp has a Earnings Per Share Growth Rate of 331.14%, a Return on Equity of 97.79%, a Current Ratio of 3.91, and a Quick Ratio of 3.60. The short interest was 15.88% as of 06/27/2012. Gold Resource Corporation, an exploration stage company, engages in the exploration for and production of gold and silver in Mexico. It also explores copper, lead, and zinc ores. The company holds a 100% interest in 6 properties, including the El Aguila Project, the El Rey property, the Las Margaritas property, the Solaga property, the Alta Gracia property, and the El Chamizo property located in southern State of Oaxaca.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.