7 Profitable Small Cap Stocks With "Buy" Ratings

by: ZetaKap

For growth opportunities, many investors choose the small cap category. Companies of this size have plenty of room to grow, and yet they have already surpassed the start up phase. Risk is a known factor at this level, but there are ways to whittle down the pile to those with true potential. For your review, we ran a scan of small cap stocks with strong profits. In addition, all of the stocks in our list have a recent "Buy" rating from industry analysts. We think you find our list a helpful place to start your investigation.

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.

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. As well, 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.

We first looked for small cap stocks. We next screened for businesses that analysts rate as "Buy" (2 < mean recommendation < 3). Next, we then screened for businesses that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(ROA > 10%). We did not screen out any sectors.

Do you think these small-cap stocks can offer attractive returns? Use this list as a starting-off point for your own analysis.

1) USANA Health Sciences Inc. (NYSE:USNA)

Sector Healthcare
Industry Drug Related Products
Market Cap $653.84M
Beta 0.90

USNA stock chart

Key Metrics

Analysts' Rating 2.20
Return on Equity 33.55%
Return on Assets 24.00%
Short Interest 34.83%

USANA Health Sciences, Inc. develops, manufactures, distributes, and sells nutritional and personal care products worldwide. It offers the USANA Nutritionals product line, which consists of essentials, including vitamin and mineral supplements that provide a foundation of nutrition for various age groups; optimizers that are targeted supplements supporting needs, such as cardiovascular health, skeletal/structural health, and digestive health; and foods comprising low-glycemic meal replacement shakes, snack bars, and other related products that offer optimal macro-nutrition. Its Sense product line comprises personal care products that support healthy skin and hair. The company also offers materials and online tools, such as associate starter kit and product brochures that are designed to assist associates in building their businesses and in marketing the company's products. USANA Health Sciences, Inc. primarily distributes its products through a network marketing system of independent distributors. The company was founded in 1992 and is headquartered in Salt Lake City, Utah.

2) Arbitron Inc. (NYSE:ARB)

Sector Services
Industry Marketing Services
Market Cap $941.46M
Beta 1.56

ARB stock chart

Key Metrics

Analysts' Rating 2.50
Return on Equity 54.44%
Return on Assets 26.45%
Short Interest 7.02%

Arbitron Inc. operates as a media and marketing information services company in the United States and internationally. It offers syndicated radio ratings services to radio broadcasters, advertising agencies, and advertisers in the U.S.; and software used for accessing and analyzing its media audience and marketing information data. The company also estimates the size and demographics of radio audiences, and of network radio programming and commercials; audiences of other media services, including mobile media and out-of-home television viewing, and measures usage; and audiences across various platforms of media. In addition, it provides consumer, shopping, and media usage information services, such as Scarborough, RetailDirect, and Qualitative Diary/LocalMotion services to radio stations, cable companies, television stations, out-of-home media, magazine and newspaper publishers, advertising agencies, and advertisers, as well as non-syndicated research services to companies that are seeking to demonstrate the value of their advertising propositions. The company's software applications include Maximi$er, TAPSCAN, and PD Advantage for radio stations; Media Professional and SmartPlus services for advertising agencies and advertisers; and PPM Analysis Tool for radio stations and advertising agencies. The company, formerly known as Ceridian Corporation, was founded in 1912 and is headquartered in Columbia, Maryland.

3) Shanda Games Limited (NASDAQ:GAME)

Sector Technology
Industry Multimedia & Graphics Software
Market Cap $946.91M
Beta -

GAME stock chart

Key Metrics

Analysts' Rating 2.50
Return on Equity 32.85%
Return on Assets 16.25%
Short Interest 1.21%

Shanda Games Limited, an online game company, develops, sources, and operates online games in the People's Republic of China. It also licenses its games to third parties. The company offers massively multi-player online role-playing games (MMORPGs) in various genres, including martial arts adventure, fantasy, strategy, and historical events; and advanced casual games in battle, fighting, side-scrolling combat, racing, turn-based, action, and shooting genres. It develops and sources online game content through multiple channels, including in-house development, licensing, investment, acquisition, and joint operations. As of February 29, 2012, the company operated 35 online games. Shanda Games Limited was founded in 2001 and is based in Shanghai, China.

4) Tempur Pedic International Inc. (NYSE:TPX)

Sector Consumer Goods
Industry Home Furnishings & Fixtures
Market Cap $1.89B
Beta 2.06

TPX stock chart

Key Metrics

Analysts' Rating 2.40
Return on Equity 364.16%
Return on Assets 24.42%
Short Interest 7.76%

Tempur-Pedic International Inc. engages in the manufacture, marketing, and distribution of bedding products in North America and internationally. It offers mattresses, pillows, and adjustable bed bases, as well as various cushions and other comfort products. The company sells its products under the TEMPUR and Tempur-Pedic brand names through furniture and bedding retailers, and non-spring and department stores; direct response programs, the Internet, and company-owned stores; hospitals, nursing homes, healthcare professionals, and medical retailers; and third party distributors. Tempur-Pedic International Inc. was founded in 1989 and is headquartered in Lexington, Kentucky.

5) Altisource Portfolio Solutions S.A. (NASDAQ:ASPS)

Sector Financial
Industry Mortgage Investment
Market Cap $1.96B
Beta -

ASPS stock chart

Key Metrics

Analysts' Rating 2.50
Return on Equity 52.21%
Return on Assets 44.02%
Short Interest 0.70%

Altisource Portfolio Solutions S.A., together with its subsidiaries, provides services related to real estate and mortgage portfolio management, asset recovery, and customer relationship management primarily in the United States. Its Mortgage Services segment offers mortgage portfolio management services to loan originators and loan servicers. This segment provides asset management services that primarily include property preservation, property inspection, real estate owned (REO) asset management, and REO brokerage; residential property valuation; closing and title services; default management services, such as non-legal back-office support for foreclosure, bankruptcy, and eviction attorneys, as well as foreclosure trustee services. The company's Financial Services segment offers unsecured asset recovery management services, including post-charge-off consumer debt collection that comprise credit cards, auto loans, and second mortgages; and customer relationship management services, such as customer care and early stage collection. Its Technology Services segment provides integrated technological solutions for loan servicing, vendor management, and invoice presentment and payment; and IT infrastructure services, such as desktop management, application support, network management, telephony, data center management, disaster recovery, helpdesk, and infrastructure security. This segment offers REALSuite of applications consisting of REALServicing, an enterprise residential mortgage loan servicing platform; REALTrans, an electronic business-to-business exchange that automates and simplifies the ordering, tracking, and fulfilling of mortgage and other services; and REALRemit, an electronic invoicing and payment system. The company serves sub-prime servicers, utility companies, commercial banks, servicers, mortgage bankers, and financial service companies, as well as hedge funds. Altisource Portfolio Solutions S.A. was incorporated in 1999 and is based in Luxembourg.

6) Corporate Executive Board Co. (EXBD)

Sector Services
Industry Management Services
Market Cap $1.57B
Beta 1.13

CEB stock chart

Key Metrics

Analysts' Rating 2.50
Return on Equity 66.07%
Return on Assets 12.27%
Short Interest 2.79%

The Corporate Executive Board Company provides data analysis, research, and advisory services to executives and professionals in the United States, Europe, and internationally. It analyzes and documents corporate best practices for significant and pressing issues that members confront, and delivers through various channels, including Web-based resources, interactive workshops, live meetings, and published studies; and creates and maintains benchmarking assets with information, such as organizational structures, costs, and productivity, as well as member experience and service quality. The company also provides tools and analysis that enable decision making and performance improvement; and networking opportunities for peer executives and professionals, which include services, such as online peer discussion groups, on-request advice, feedback, and perspectives, as well as executive education curriculum to executives and their teams, supported through E-learning resources. Its products and services focus on various corporate functions, including finance, corporate services, and corporate strategy; human resources; information technology; legal, risk, and compliance; sales, marketing, and communications, as well as serves the financial services industry and government agencies. The Corporate Executive Board Company was founded in 1979 and is headquartered in Arlington, Virginia.

7) Bally Technologies, Inc. (NYSE:BYI)

Sector Technology
Industry Application Software
Market Cap $1.91B
Beta 1.64

BYI stock chart

Key Metrics

Analysts' Rating 2.30
Return on Equity 49.46%
Return on Assets 10.63%
Short Interest 10.15%

Bally Technologies, Inc. operates as a diversified gaming company. The company designs, manufactures, operates, and distributes technology-based gaming devices, systems, and server-based solutions worldwide. It offers technology solutions, which provide gaming operators with a range of marketing, data management and analysis, accounting, player tracking, security, and other software applications and tools to manage their operations. The company operates in three segments: Gaming Equipment, Gaming Operations, and Systems. The Gaming Equipment segment involves in the sale of gaming devices and related equipment, parts, and conversion kits. The Gaming Operations segment engages in the operation of linked progressive systems, video lottery, and centrally determined systems; and the rental of gaming devices and content. The Systems segment involves in the sale and support of specialized systems-based software and hardware products; and related hardware and software maintenance services. Its primary hardware technologies include spinning-reel and video gaming devices; specialty gaming devices and wide-area progressive systems for traditional land-based, riverboat and Native American casinos; video lottery and central determination markets; and specialized system-based hardware products. The company was formerly known as Alliance Gaming Corporation and changed its name to Bally Technologies, Inc. in March 2006. Bally Technologies, Inc. was founded in 1968 and is headquartered in Las Vegas, Nevada.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/23/2012.

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

Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.