3 Liquid Small Cap Healthcare Stocks Set For Growth

Includes: AUXL, DEPO, EBS
by: ZetaKap

When a small cap healthcare company has projected EPS growth rates above 25% for the next five years, this can be viewed as a message that there are solid product offerings and strategic partnerships are in place. A further criteria that assists in building confidence for investors and the company alike, is a high level of liquidity. Having cash reserves is especially critical to any small cap healthcare company that has plans for growth, as research and development tend to be costly endeavors. Take a look at the list below of liquid small cap healthcare stocks that are projected for expansion to see if any speak to your investment standards.

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).

EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 5-Year Expected EPS Growth Rate is a long term annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.

We first looked for small cap healthcare stocks. From here, we then looked for companies with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then looked for companies with projected high growth, measured by 5-year projected EPS growth above 25%.

Do you think these small-cap stocks should be priced higher? Use our list along with your own analysis.

1) Emergent BioSolutions, Inc. (NYSE:EBS)

Sector Healthcare
Industry Biotechnology
Market Cap $533.23M
Beta -0.06

EBS stock chart

Key Metrics

Current Ratio 5.47
Quick Ratio 5.11
5-Year Projected Earnings Per Share Growth Rate 29.00%
Short Interest 3.64%

Emergent BioSolutions, Inc., a biopharmaceutical company, engages in the development, manufacture, and commercialization of vaccines and therapeutics for use in defense and commercial markets to healthcare providers and purchasers in the United States and internationally. It markets BioThrax, a vaccine for the prevention of anthrax disease. The company has agreements with USAMRIID, OETC, and Pfizer. Emergent BioSolutions, Inc. was founded in 1998 and is based in Rockville, Maryland.

2) Depomed, Inc. (NASDAQ:DEPO)

Sector Healthcare
Industry Drug Manufacturers - Other
Market Cap $319.37M
Beta 1.35

DEPO stock chart

Key Metrics

Current Ratio 2.42
Quick Ratio 2.22
5-Year Projected Earnings Per Share Growth Rate 30.00%
Short Interest 7.29%

Depomed, Inc., a specialty pharmaceutical company, develops and commercializes pharmaceutical products for neurology, pain, and other central nervous system conditions and diseases. The company offers Gralise tablet, a once-daily formulation of gabapentin for the management of postherpetic neuralgia; Zipsor, an oral liquid filled capsule formulation of diclofenac potassium for the treatment of mild to moderate acute pain; and Glumetza metformin hydrochloride extended release tablet that are used as a once-daily treatment for adults with type 2 diabetes. The company sells its Gralise products to wholesalers and retail pharmacies. It has collaboration or license arrangements with Merck & Co., Inc.; Boehringer Ingelheim International GMBH; Ironwood Pharmaceuticals, Inc.; Janssen Pharmaceutica N.V.; Covidien, Ltd.; Patheon Puerto Rico, Inc.; Valeant Pharmaceuticals International, Inc.; and PharmaNova, Inc. The company was founded in 1995 and is based in Menlo Park, California.

3) Auxilium Pharmaceuticals Inc. (NASDAQ:AUXL)

Sector Healthcare
Industry Drug Related Products
Market Cap $1.15B
Beta 0.75

AUXL stock chart

Key Metrics

Current Ratio 2.67
Quick Ratio 2.48
5-Year Projected Earnings Per Share Growth Rate 30.00%
Short Interest 7.37%

Auxilium Pharmaceuticals, Inc., a specialty biopharmaceutical company, together with its subsidiaries, engages in developing and marketing pharmaceutical products primarily in the United States. It markets Testim, a testosterone gel for the treatment of hypogonadism; and XIAFLEX (collagenase clostridium histolyticum), an injectable collagenase enzyme for the treatment of Dupuytren's contracture in adult patients with a palpable cord. The company sells its products to wholesale drug distributors, specialty pharmacies, specialty distributors, and chain drug stores. Auxilium Pharmaceuticals, Inc. was founded in 1999 and is headquartered in Malvern, Pennsylvania.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/18/2012.

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.