3 Low-Debt, Undervalued Small-Cap Stocks

Includes: LF, RBCAA, SIMO
by: ZetaKap

When the price of a stock falls, one question to ask is whether or not the company has traits that point to resiliency. If it does, then it is likely that the drop in price is a temporary condition. Debt ratios can provide insight about a company's ability to recover. When a company has borrowed too heavily, it tends to impede resiliency and create barriers to growth. With this in mind, we developed a short list of small-cap stocks that appear to be undervalued and have minimal debt. Use the graphs and data below to see if any of these stocks spark your interest.

The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is "better" (cheaper) and a higher ratio is "worse" (expensive) - a PEG ratio of 1 means the company is fairly priced.

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

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.

We first looked for small-cap stocks. We then screened for businesses that appear undervalued to earnings growth (PEG < 1) (P/CFO<10). We then looked for businesses that operate with little to no long-term debt (Long Term D/E Ratio<.1). We did not screen out any sectors.

Do you think these small-cap stocks are in strong positions for future growth? Please use our list to assist with your own analysis.

1) LeapFrog Enterprises Inc. (NYSE:LF)

Sector Consumer Goods
Industry Toys & Games
Market Cap $618.06M
Beta 2.00

LF stock chart

Key Metrics

Price/Earnings to Growth Ratio 0.79
Price/Cash Flow Ratio 4.87
Long Term Debt/Equity Ratio 0.00
Short Interest 8.47%

LeapFrog Enterprises, Inc. designs, develops, and markets technology-based learning products and related proprietary content for children worldwide. The company offers multimedia learning platform products, including LeapPad, a kid-tough personalized learning tablet with a built-in camera and video recorder; and Leapster Explorer, a handheld multimedia learning platform. Its multimedia learning platform products also comprise Leapster2, a handheld learning platform with a multi-directional control pad, touch-screen, and built-in stylus; Tag reading system, a stylus-based reading system; and Tag Junior reading system designed to introduce younger children to books and reading.

In addition, the company offers learning toys consisting of Scout Collection, a line of learning toys themed around its proprietary Scout puppy dog character; Fridge Collection, a line of magnetic learning toys that introduce letter names and sounds, spellings, and songs to children; and Learn & Groove Collection with bilingual musical learning toys. Further, it provides online services comprising Learning Path, an online tool that helps parents track what their children are learning; and App Center, which provides content for various topics. LeapFrog Enterprises, Inc. sells its products directly to national and regional mass-market and specialty retailers; other retail stores and distributors; school-related distributors and resellers; and through online store and other Internet-based channels. The company was founded in 1995 and its headquarters is in Emeryville, California. LeapFrog Enterprises, Inc. is a subsidiary of Mollusk Holdings, LLC.

2) Silicon Motion Technology Corp. (NASDAQ:SIMO)

Sector Technology
Industry Diversified Electronics
Market Cap $467.71M
Beta 2.03

SIMO stock chart

Key Metrics

Price/Earnings to Growth Ratio 0.56
Price/Cash Flow Ratio 4.12
Long Term Debt/Equity Ratio 0.00
Short Interest 3.78%

Silicon Motion Technology Corporation, a fabless semiconductor company, designs, develops, and supplies a portfolio of multimedia data processing, storage, and transfer solutions primarily for consumer electronics applications. The company offers a range of microcontrollers for use in NAND flash memory storage products, including flash memory cards, USB flash drives, and embedded flash and solid state drives. It also offers a range of multimedia SoCs comprising embedded graphics processors for embedded graphics applications in desktop and notebook personal computers, game consoles, work stations, and multimedia mobile phones. In addition, the company provides semiconductor solutions consisting of mobile television tuners and integrated tuner plus demodulator SoCs for mobile phones and other portable devices; and CDMA transceivers for CDMA 1x and EVDO modem solutions, as well as transceivers for LTE modem solutions. It sells its products to module makers, original equipment manufacturers, and original design manufacturers through its direct sales force and distributors in Canada, China, Europe, Japan, Korea, Taiwan, and the United States. The company has its headquarters in Jhubei City, Taiwan.

3) Republic Bancorp Inc. (NASDAQ:RBCAA)

Sector Financial
Industry Regional - Southeast Banks
Market Cap $504.72M
Beta 1.02

RBCAA stock chart

Key Metrics

Price/Earnings to Growth Ratio 0.48
Price/Cash Flow Ratio 4.06
Long Term Debt/Equity Ratio 0.08
Short Interest 11.31%

Republic Bancorp, Inc. provides banking services and tax refund solutions to individuals and businesses in the United States. The company's deposit products include demand deposits, money market and brokered money market accounts, savings and time deposits, individual retirement accounts, certificates of deposit, and brokered certificates of deposit. Its loan portfolio comprises single family first lien residential real estate loans, home equity loans, and home equity lines of credit; commercial real estate and multi-family loans, residential construction real estate loans; and credit cards and home improvement loans, as well as other secured and unsecured personal loans.

In addition, the company provides private banking; treasury management services, such as lockbox processing, remote deposit capture, business online banking, account reconciliation, and automated clearing house processing services; Internet banking services and products through its republicbank.com Website; and trust, title insurance, and other financial institution related products and services. Further, it is involved in the origination and sale of loans in the secondary market; provision of short-term revolving credit facilities secured by single family residential real estate loans to mortgage bankers; and servicing loans. Additionally, the company offers tax refund solutions, which facilitate the payment of federal and state tax refund products through third-party tax preparers and tax-preparation software providers. As of July 18, 2012, it operated 43 banking centers, including 34 banking centers in 12 Kentucky communities; 3 banking centers in southern Indiana; 1 banking center in Franklin, Tennessee; 4 in Florida; and 1 in Blue Ash, Ohio. Republic Bancorp, Inc. was founded in 1974 and is headquartered in Louisville, Kentucky.

Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/14/2012.

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.