Skip to main content

What are we looking for?

U.S.-listed small-cap growth stocks and American depositary receipts (ADRs) trading at a discount.

Earlier this month we focused on Canadian small-cap stocks and today we generate a similar filter with the focus on stocks trading south of the border. U.S. small caps have encountered a lot of interest from investors this year because of the outperformance of this category.

The screen

We screened U.S. and ADR small-cap companies by focusing on market performance using the following criteria:

Story continues below advertisement

  • A market capitalization between US$250-million  and US$2-billion;
  • A future-growth-value-to-market-value (FGV/MV) ratio between minus 70 per cent and zero per cent. Since we are looking for discounted stocks, we are searching for a negative FGV/MV, as this translates into an undervalued stock. (This metric represents the proportion of the market value of the company that is made up of future growth expectations, rather than the actual profit generated.) A negative value indicates that the market hasn’t reacted and thus the price has not taken in the improved performance yet.
  • An economic performance index (EPI) greater than or equal to one. The EPI is the ratio of return on capital to cost of capital. It gives shareholders an idea of how much return the company is generating on each dollar spent;
  • Annual return on capital greater than 5 per cent, reported as of last quarter’s end;
  • Return on capital 12-month spread greater than zero;
  • Positive 12-month sales change;
  • Positive 12-month stock-price change.

For informational purposes, we have also included dividend yield and recent share price.

Please note that some ratios shown are based on an end-of-quarter reporting and the one-year price change is reported as of last month’s end.

More about Inovestor

Inovestor for Advisors is a research platform application based on the economic profit approach. It aids advisers in quickly identifying attractive investment opportunities and easily communicating them to their clients. In addition to providing detailed reports on more than 13,000 companies (Canadian stocks, U.S. stocks and ADRs), Inovestor allows investors to create personalized filters and build custom portfolios.

What we found

We came up with a list of 19 companies; they are ranked by market cap.

China Yuchai International Ltd. is one of the largest engine manufacturers in China. It is an interesting find since the stock price has increased by 19.2 per cent, however, the market has not reacted to the same extent and the stock is still trading at a 44.4-per-cent discount, as shown by the FGV/MV ratio. Furthermore, return on capital and sales continue to grow steadily.

Another interesting result is Tilly’s Inc., an American retail clothing company based in Irvine, Calif. The stock is generating a return on capital that is 1.4 times the costs of capital. This ratio is a positive signal for the company as it indicates a solid value-creating ability for investors. In addition, the stock price has experienced tremendous growth over the past 12 months.

Select U.S.-listed small caps

Company Ticker Mkt. Cap. (US$ Mil.) FGV on MV (%) EPI R/C (%) R/C 12M Spread (%) Sales Chg. 12M (%) Price Chg. 12M (%) Recent Price (US$) Div. Yield (%)
Allegiant Travel Co. ALGT-Q 1,990 -41.3 2.5 14.6 0.9 10.0 2.5 124.85 2.0
Magellan Health Inc. MGLN-Q 1,768 -10.5 1.1 7.5 0.0 27.5 31.6 72.00 n/a
Blucora Inc. BCOR-Q 1,705 -1.5 1.3 8.6 1.0 12.8 74.5 36.40 n/a
Rmr Group Inc. RMR-Q 1,398 -45.6 5.5 45.3 11.7 43.9 61.3 86.45 1.4
Asbury Automotive Group Inc. ABG-N 1,387 -19.4 1.3 11.7 1.6 1.1 21.2 68.15 n/a
Gray Television Inc. GTN-N 1,327 -32.0 1.0 13.0 4.3 7.5 15.3 14.95 n/a
Asia Cement (China) Hldgs (ADR) AACEY-OTC 1,186 -43.0 1.6 16.5 3.5 32.6 100.3 15.14 n/a
Pou Sheng International (ADR) PSHGY-OTC 1,022 -54.2 1.6 9.8 2.4 6.2 6.6 39.24 0.0
PBF Logistics LP PBFX-N 874 -29.8 1.8 18.6 3.8 22.3 7.7 20.85 10.3
China Yuchai International CYD-N 791 -44.4 1.1 10.5 0.5 9.8 19.2 19.38 n/a
Koppers Holdings Inc. KOP-N 776 -35.0 1.6 10.5 0.2 8.4 6.1 36.75 n/a
Global Brass And Copper BRSS-N 702 -36.8 2.5 15.6 0.3 16.9 2.6 31.70 0.7
Urstadt Biddle Properties UBP-N 670 -10.3 1.3 9.4 2.3 12.8 5.9 17.41 6.2
Anadolu Hayat Emeklilik (ADR) AELIY-OTC 590 -54.4 3.7 26.1 3.2 2.1 19.8 5.48 n/a
Sutherland Asset Management SLD-N 528 -3.3 1.0 10.1 2.1 40.2 9.4 16.50 9.8
Del Taco Restaurants Inc. TACO-Q 489 -27.6 1.1 9.5 3.2 4.1 3.1 12.85 n/a
Tilly's Inc. TLYS-N 442 -3.0 1.4 8.9 1.6 1.7 49.3 15.16 n/a
Magic Software Enterprises MGIC-Q 383 -12.9 1.3 14.0 3.6 22.6 4.4 8.60 2.5
Capital Southwest Corp. CSWC-Q 296 -1.9 1.4 13.6 5.1 17.0 12.6 18.33 5.8
Group Average (19/8,578) 964 -26.7 1.8 14.4 2.7 15.8 23.86 34.75 4.3

Source: Inovestor

Investors are advised to do their own research before investing in any of the securities shown here.

Story continues below advertisement

Noor Hussain is an account executive for Inovestor Inc.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter