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What are we looking for?

Small caps with solid fundamentals.

We believe small-capitalization stocks, generally seen as more risky than large caps, will also be more likely than large caps to take advantage of renewed economic activity as the pandemic recedes in the months ahead.

The screen

We screened North American stocks focusing on the following criteria:

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  • Market capitalization between $250-million and $1-billion;
  • StockPointer (SP) performance score of 75 or higher. The score mainly considers risk-adjusted return on capital, earnings per share growth and free cash flow per share. The score varies between zero and 100;
  • Sales growth higher than 4 per cent over 24 months – we are looking for a company that can grow at a reasonable rate;
  • One-year return lower than 50 per cent – we are trying to eliminate companies with too much short-term price momentum as they could be subject to mean reversion, that is, eventually reverting to their long-term average levels.

For informational purposes, we have also included the recent stock price, price-to-earning ratio, one-year earnings per share growth and dividend yield. Please note that some ratios may be shown as of end of previous quarter.

More about Inovestor

Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian and U.S. stocks and American depositary receipts).

What we found

Small caps with solid fundamentals

CompanyTickerMkt. Cap. ($ Mil.)*SP Perf. Score24M Sales Growth (%)1Y Price Rtn. (%)P/E1Y EPS Growth (%)Div. Yld. (%)Recent Price ($)*
Stingray Group Inc.RAY-A-T52082.148.917.820.9-3.64.27.09
Savaria Corp.SIS-T85579.945.830.830.418.92.916.74
Investors Title Co.ITIC-Q31079.451.3-4.87.925.01.1163.77
Hingham Instit. for SavingsHIFS-Q51678.023.327.311.930.20.8245.00
Farmers National BancFMNB-Q39077.927.5-13.09.414.83.213.83
Corby Spirit & Wine Ltd.CSW-A-T47777.44.8-0.815.316.65.016.80
Reliant Bancorp Inc.RBNC-Q35577.091.00.110.939.22.221.77
Federal Agric. MortgageAGM-N87275.94.616.410.15.23.983.11
Capital City Bank GroupCCBG-Q41175.842.1-13.712.72.42.524.50
Bank First Corp.BFC-Q53375.342.19.415.030.61.269.10
Terravest IndustriesTVK-T32475.04.26.410.332.72.317.55

Source: Inovestor

*Market cap and recent stock price figures are in native currency

Music service provider Stingray Group Inc., based in Montreal, has the highest SP performance score of our list. Sales increased vigorously in the past two years partly because of a series of acquisitions. The stock price rose moderately in the past year as the broadcasting and commercial music segment held out, but the radio segment (mostly ads), which counts for 50 per cent of Stingray’s total revenues, fell 40 per cent on a nine-month basis. The company managed to protect its earnings per share despite this bleak time. As radio commercials and social activities return more to prepandemic levels, we expect investors to positively re-evaluate the company.

Laval, Que.-based Savaria Corp., an accessibility and patient handling company, has increased its sales by 45.8 per cent in the past two years, thanks largely to the acquisition of Garaventa Lift, an elevator company. With the pandemic spotlight on long-term care and retirement residences, older people may be more inclined to consider adapting their house to their reality instead of moving, which would benefit Savaria. The company announced on Feb. 4 it had acquired Swedish-listed Handicare Group AB, another patient handling company, to reinforce its already well-positioned business in this industry.

Investors Title Co., a title insurance provider headquartered in Chapel Hill, N.C., trades at a modest price-to-earnings ratio of 7.9. The company has profited from the booming U.S. residential real estate market over the past two years, achieving 51.3 per cent higher sales over that period, and 25 per cent higher EPS in the past year. If teleworking persists, the strong residential market could very well remain. Despite impressive results, the market appears to be particularly cautious: The company’s stock still trades about 20 per cent below its record high of US$204, reached in March, 2018.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

Anthony Ménard is an investment analyst at Inovestor Asset Management.

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For more details about these stocks, subscribe to the Inovestor for Advisors platform for free.

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