Investors are constantly on the search for the next Home Depot (HD) or Apple (AAPL). Those who owned these stocks in the early days and have been able to watch their stocks climb through the years. A single share of Apple cost $2.75 in 1980 and the stock broke through 700 dollar mark in September. Investors who are seeking these kinds of returns shouldn't't buy well established companies that have a large market capitalization. They should be instead looking for small cap companies that still have plenty of room to grow. The PEG ratio, which was popularized by legendary investor Peter Lynch, is a good indicator of a stock's true value. A PEG ratio between 0 and 1 may provide higher returns. Thus, small cap stocks with low PEG ratio's have the potential for phenomenal returns.
1. Krispy Kreme Donuts (KKD)- Krispy Kreme Donuts are sold all over the world in grocery stores and there are 635 franchise locations. The stock has a market capitalization of 614.40 million dollars and a PEG ratio of .76. It's P/E ratio is also much lower than other restaurant chains. The company has plenty of room to grow overseas and they recently opened their 500th international retail location.
2. Arctic Cat (ACAT)- Arctic Cat designs and sells ATVs and snowmobile. The fundamentals for this company are much better than rivals such as Polaris. The stock has market capitalization of 455.63 million dollars and a PEG ratio of .73. It has P/E ratio of 13.65, which is below the sector average. In addition to the low P/E ratio and PEG ratio, Arctic Cat has a P/S ratio of .76. Despite the great fundamentals, Artic Cat could be hit hard if we go over the fiscal cliff due to the cyclical nature of its business.