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What are we looking for?

We are looking for high quality U.S. small cap stocks that might slip under your radar.

The screen

We screened our U.S. stocks universe, including American depositary receipts, with the following criteria:

  • A market capitalization of more than $500-million (U.S.) but less than $2-billion;
  • An economic performance index, or EPI (return on capital divided by cost of capital) greater than 1.0. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
  • A positive EPI change over the last 12 and 24 months;
  • A return on capital greater than 12 per cent;
  • A positive return on capital change over the past 12 and 24 months;
  • A positive sales growth over the past 12 and 24 months;
  • A free-cash-flow-to-capital ratio of 5 per cent or higher. This ratio gives a sense of how well the company uses the invested capital to generate free cash flow, which could be used to stimulate growth, pay and/or increase dividends, reduce debt, etc. A positive figure is good, 5 per cent and above is excellent;
  • A debt-to-equity ratio of less than 1.0;
  • A positive three-month price performance.

More about StockPointer

StockPointer is a fundamental analysis tool based on an EVA (economic value-added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 7,500 companies (Canadian stocks, U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.

What did we find?

Thirteen stocks make the cut. Computer Services Inc. comes up as the highest wealth creator thanks to a high and increasing EPI of 4.0. The company operates in one of today's hottest industries: Fintech (financial technology). Computer Services provides regulatory compliance software to banks, financial institutions and other industries. The company has no long term debt, generates high free cash flow and its stock has stayed on a positive trend since early 2016.

Applied Optoelectronics Inc., the best three-month performer of the group with a return of 93.6 per cent, also has the highest sales growth on both the 12- and 24-month horizons. The company is a vertically integrated provider of fibre-optic networking products.

On July 13, Optoelectronics said it expects its second-quarter results to exceed guidance; the results are slated to be released after markets close on Aug. 3.

Investors are advised to do additional research prior to investing in any of the companies mentioned.

Jean-Didier Lapointe is a financial analyst at Inovestor Inc.

U.S. small caps worth a look

CompanyTickerMarket Cap ($Mil U.S.)EPIEPI 12M Chg.EPI 24 M Chg.R/CR/C 12M Chg.Sales 12M Chg.Sales 24M Chg.FCF / CapitalDebt to EquityPrice 3M Var.
Computer Services Inc.CSVI-OTC6924.00.70.625.1%4%13%13%12.6%0.011.2%
Sturm, Ruger & Co.RGR-N1,0603.70.82.426.7%2%12%29%7.3%0.04.2%
American Outdoor BrandsAOBC-Q1,1603.51.41.923.4%3%25%64%13.4%0.50.0%
Marine Products Corp.MPX-N5532.91.72.223.4%8%13%43%7.0%0.047.3%
Delta Galil Industries Ltd.DELTY-OTC8092.51.11.214.6%2%16%25%5.8%0.70.5%
Select Comfort Corp.SCSS-Q1,3002.51.61.017.8%9%11%10%23.6%0.028.1%
Biotelemetry Inc.BEAT-Q9852.21.11.821.4%11%17%25%7.8%0.212.8%
Petmed Express Inc.PETS-Q8002.00.30.120.5%2%6%9%36.4%0.079.1%
Winnebago Industries Inc.WGO-N1,1401.80.80.721.9%7%41%40%17.4%0.738.1%
Callaway Golf Co.ELY-N1,1801.71.21.818.6%13%9%11%6.2%0.08.3%
National Research Corp.NRCIA-Q5901.60.10.421.4%2%8%13%12.2%0.033.3%
Applied Optoelectronics Inc.AAOI-Q1,7201.40.71.120.2%13%46%126%5.4%0.193.6%
Shutterstock Inc.SSTK-N1,5701.30.60.716.0%6%14%44%11.2%0.07.4%

Source: StockPointer

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