7 Low-Debt, Undervalued Small-Cap Stocks

by: ZetaKap

There can be two trains of thought that occur when the price of a stock dips. Some might think it is wonderful news and a great opportunity to get in on a stock at a good price. Others might be more wary and wonder if there is something fundamentally wrong with the company. For investors who follow the second line of thinking, it can be helpful to review ratios that compare sales and earnings as well as debt ratios to find out more about the health of the company. Today we ran a scan of small-cap stocks that appear to be trading below their true value. In addition, all of the companies in our list have minimal long-term debt, which points to a solid capital structure. We think you will find our list worthy of further analysis.

The Long-Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared with its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it with others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.

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 lets an investor know how much the investment community is willing to pay for every dollar's 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 dollar's 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/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.

We first looked for small-cap stocks. We then screened for businesses that have maintained a sound long-term capital structure (Long Term D/E Ratio<.1). We then looked for businesses that are trading at a discount (P/S<1) (P/E<10). We did not screen out any sectors.

Do you think these small-cap stocks should be trading higher? Use our screened list as a starting point for your own analysis.

1) Convergys Corporation (NYSE:CVG)

Sector Technology
Industry Business Software & Services
Market Cap $1.74B
Beta 1.37

CVG stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.04
Price/Sales Ratio 0.81
Price/Earnings Ratio 8.27
Short Interest 7.19%

Convergys Corporation provides relationship management solutions in North America and internationally. Its Customer Management segment offers agent-assisted, self-service, and intelligent technology care solutions, including customer service, customer retention, sales, technical support, social interaction, collections management, back office, business-to-business, customer experience applied analytics, and intelligent interaction solutions for communications, financial services, technology, retail, healthcare, and government markets. This segment also provides premise-based and hosted automated self-care and technology solutions; speech recognition solutions; and license, professional, consulting and maintenance, and software support services. Convergys Corporation was founded in 1998 and its headquarters is in Cincinnati, Ohio.

2) DeVry, Inc. (DV)

Sector Services
Industry Education & Training Services
Market Cap $1.24B
Beta 0.57

DV stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Price/Sales Ratio 0.58
Price/Earnings Ratio 6.26
Short Interest 13.59%

DeVry Inc., together with its subsidiaries, provides educational services worldwide. The company operates various institutions, including Advanced Academics, American University of the Caribbean, Becker Professional Education, Carrington College and Carrington College California, Chamberlain College of Nursing, DeVry Brasil, DeVry University, and Ross University. These institutions offer an array of programs in business, healthcare, and technology, as well as serve students in middle school through post-secondary education, and accounting and finance professionals.

It offers career-oriented associate, bachelor's, and master's degree programs in technology, science, business, arts, and nursing; medical and veterinary medical education; and undergraduate and graduate programs focused in business management, nursing, law, and engineering, as well as online learning solutions for middle and high school education.

The company also prepares students for careers in healthcare through certificate, associate, and bachelor's degree programs; and candidates for the certified public accountant examination, chartered financial analyst professional certification examinations, and the project management professional certification examination, as well as provides continuing professional education programs and seminars in accounting and finance. DeVry Inc. was founded in 1931 and its headquarters is in Downers Grove, Illinois.


Sector Services
Industry Business Services
Market Cap $1.28B
Beta 1.22

SNX stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.07
Price/Sales Ratio 0.12
Price/Earnings Ratio 7.89
Short Interest 22.91%

SYNNEX Corporation provides distribution and business process outsourcing services to resellers, retailers, and original equipment manufacturers (OEMs) worldwide. The company operates in two segments, Distribution Services and Global Business Services (GBS). The Distribution Services segment distributes information technology products, including IT systems, peripherals, system components, software, networking equipment, consumer electronics, and complementary products in the United States, Canada, Japan, and Mexico.

This segment also offers contract assembly services, such as systems design, build-to-order, configure-to-order, and assembly capabilities; value-added services comprising kitting, reconfiguration, asset tagging, and hard drive imaging for government and healthcare sectors; and specialized services in print management, renewals, and networking.

The GBS segment offers a range of BPO services, including customer management, renewals management, back office processing, and IT outsourcing on a global platform comprising technical support, demand generation, and marketing and administration services through voice, chat, Web, email, digital print, and social media. SYNNEX Corporation also provides logistics services, such as outsourced fulfillment, virtual distribution and direct ship to end-users; financing services consisting of net terms, third-party leasing, floor plan financing, letters of credit backed financing, and arrangements; marketing services comprising direct mail, external media advertising, reseller product training, targeted telemarketing campaigns, national and regional trade shows, database analysis, print on demand services, and Web-based marketing; and online and technical support services. The company was formerly known as SYNNEX Information Technologies, Inc. and changed its name to SYNNEX Corporation in October 2003. SYNNEX Corporation was founded in 1980 its headquarters is in Fremont, California.

4) Symetra Financial Corporation (NYSE:SYA)

Sector Financial
Industry Life Insurance
Market Cap $1.46B
Beta -

SYA stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Price/Sales Ratio 0.76
Price/Earnings Ratio 8.05
Short Interest 2.31%

Symetra Financial Corporation, through its subsidiaries, provides group and individual insurance products and retirement products in the United States and the District of Columbia. Its Benefits division offers medical stop-loss insurance, limited benefit medical insurance, group life insurance, accidental death and dismemberment insurance, and disability income insurance products to employers, unions, and public agencies with 50 to 5,000 employees, as well as provides managing general underwriting services.

The company's Retirement division offers fixed and variable deferred annuities to consumers who accumulate tax-deferred assets for retirement; single premium immediate annuities to customers seeking a reliable source of retirement income or to protect against outliving their assets during retirement; structured settlement annuities to fund third-party personal injury settlements; and funding services options to structured settlement clients.

Its Life division provides various individual products, such as term and universal life insurance, including single-premium life insurance, as well as bank-owned life insurance. The company distributes its products through a network of benefits consultants, financial institutions, independent agents and advisers, third-party administrators, employee benefits brokers, brokerage general agents, specialty agents, and administrative services only arrangements. Symetra Financial Corporation was founded in 1957 and its headquarters is in Bellevue, Washington.

5) FLY Leasing Limited (NYSE:FLY)

Sector Services
Industry Rental & Leasing Services
Market Cap $338.10M
Beta 1.68

FLY stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Price/Sales Ratio 0.94
Price/Earnings Ratio 8.52
Short Interest 0.25%

Fly Leasing Limited acquires, finances, leases, and sells commercial jet aircraft worldwide. The company leases its aircraft under long-term to medium-term contracts to a group of airlines. As of December 31, 2011, its aircraft portfolio consisted of 109 commercial jet aircraft with 103 narrow-body passenger aircraft and 6 wide-body passenger aircraft. The company was formerly known as Babcock & Brown Air Limited and changed its name to FLY Leasing Limited in June 2010. FLY Leasing Limited was founded in 2007 and its headquarters is in Dun Laoghaire, Ireland.

6) Bridgepoint Education, Inc. (NYSE:BPI)

Sector Services
Industry Education & Training Services
Market Cap $516.64M
Beta 2.25

BPI stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Price/Sales Ratio 0.53
Price/Earnings Ratio 3.73
Short Interest 16.07%

Bridgepoint Education, Inc. provides post-secondary education services. It offers associate's, bachelor's, master's, and doctoral programs in the disciplines of business, education, psychology, social sciences, and health sciences. The company offers its programs at campuses of its Ashford University located in Clinton, Iowa; and University of the Rockies located in Colorado Springs, Colorado, as well as through online. As of December 31, 2011, it provided approximately 1,430 courses, 85 degree programs, and 140 specializations; and had 86,642 total enrolled students. The company was formerly known as TeleUniversity, Inc. and changed its name to Bridgepoint Education, Inc. in February 2004. Bridgepoint Education, Inc. was founded in 1999 and its headquarters is in San Diego, California.

7) Quanex Building Products Corporation (NYSE:NX)

Sector Industrial Goods
Industry General Building Materials
Market Cap $652.75M
Beta 1.58

NX stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.00
Price/Sales Ratio 0.31
Price/Earnings Ratio 5.85
Short Interest 7.50%

Quanex Building Products Corporation, together with its subsidiaries, provides engineered and aluminum sheet products worldwide. It operates in two segments, Engineered Products and Aluminum Sheet Products. The Engineered Products segment produces window and door components, and various products for original equipment manufacturers (OEMs) that serve the residential and commercial construction, and residential repair and remodel markets.

Its products consist of insulating glass spacer systems, thin-film solar panel sealants, window and patio door screens, aluminum cladding and other roll formed metal window components, thresholds and astragals, moldings, residential exterior products, patio doors, window profiles and custom window grilles, trim and architectural moldings in various woods, and engineered wood flooring. This segment sells its products through its direct sales force, as well as through distributors and independent sales.

The Aluminum Sheet Products segment engages in reducing hot-rolled aluminum sheet coils to specific gauge, annealing, slitting, and custom coating. Its products are used in customer end-use applications that include residential windows and screens, patio doors, exterior home trim, fascias, roof edgings, soffits, downspouts, and gutters. This segment markets its products to OEM and distribution customers through direct and indirect sales representatives. The company is based in Houston, Texas.

Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/31/2012.

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.