7 Very Attractive Small Cap Stocks By Valuation

With the market so volatile and the investors generally heading for the exits, many good companies can be acquired today for cheap. The following 7 stocks appear to be good buys right now with terrific valuations and solid history of earnings growth. In a few cases, the undervaluation is extreme due to temporary issues.

Each stock listed here has a P/E ratio under 10, a P/B ratio under 1 and has a positive earnings growth history in the previous 5 years. Whether the earnings will continue to grow or not, the stocks are priced reasonably attractively in the market. This list does not contain any Energy or commodities names, which have been the primary drivers of the stock market weakness in the recent months. More than half of these are banks or financial companies of some kind that have also seen declines recently.

These companies range from $30 million to $1 billion in market capitalization. Please note that additional detailed data is in the spreadsheet attached to this article.

Banks and Financial Institutions

Middlefield Banc Corp (MBCN)

This is a 100 year old bank serving Central Ohio. The stock pays a 3.26% dividend. The company only commands a valuation of about $63 million and is very thinly traded so liquidity can be an issue. However, the company has had consistent revenues and profits historically (16% 5 yr EPS growth) and since Dec 2012, it has grown its book value by 21% The stock can be bought at about 1x book value and a little less than 10x earnings. This is the most expensive stock in this list of 7.

Northrim BanCorp Inc (NRIM)

Northrim Bancorp sports similar multiples to Middlefield with stock being priced at 9x earnings and 0.93 times book value and 5 year EPS growth of 16% or so and delivers a 3.15% yield in dividends. The bank operates in Anchorage, Alaska and is about $170 million in market cap. I like this better than Middlefield as the stock is more liquid, a little less expensive and the balance sheet is a little stronger.

Medallion Financial Corp. (TAXI)

Medallion Financial is a specialty finance company that primarily finances taxicab medallions in New York City. This is actually a very interesting situation and I am sure this will pique the interest of many value investors. Medallion values are now plummeting due to the disruption in the market brought on by new services like Uber and Lyft. For the value investor in you, it is worth noting that the stock price now reflects tremendous discount to the value – trading at less than 7 times earnings and 70% of the book value. The company also operates in other lines of businesses, including banking, so it has the ability to pivot and grow in other areas. The stock currently pays a 13.3% dividend yield, and the EPS has on average grown 13.4% in the last 5 years.

World Acceptance Corp (WRLD)

A credit services company that services subprime market to individuals and small businesses. The stock trades at around 3 times earnings and 80% of the book value. Earnings/share have grown about 22% on average in the previous 5 years. The stock has suffered with rest of the subprime consumer lending industry with new regulations and enforcements by the Consumer Financial Protection Bureau (CFPB). This is a very hated industry and as a result certain stocks can be selling at distressed levels.

Encore Capital Group (ECPG)

The company operates a debt recovery service and tax lien purchasing and servicing business. A little similar to World Acceptance Corp but on the other end of the loan default and not necessarily all sub prime. The stock sells at 88% of the book and about 5 times earnings. Almost 50% of the shares have been shorted.

Other Industries

Roadrunner Transportation Services Holdings (RRTS)

The company provides Truckload and Less Than Truck Load (LTL) transportation services. It also has a customs brokerage business. The stock is at 9.6 times earnings and 75% of the book value. The EPS has grown at about 23% rate over the previous 5 years.

Iconix Brand Group Inc (ICON)

Iconix is a brand management company that pioneered this business model. It owns brands such as Candies, Ecko, Fieldcrest, Joe Boxer, Rampage, Mudd, London Fog, Sharper Image and many more. The company is undergoing a restatement of its previous financial statements as a result of a SEC investigation in its accounting of joint ventures in the various parts of the world. The restatement should have no impact on the free cash flow according to the company. I can give you the P/E and other ratios as of now, but they are going to be restated and therefore not relevant for any sort of analysis. The restatement will be completed in March and it may be worthwhile to keep this stock in your watchlist. The stock has fallen 75% in the previous 52 weeks. Sports Direct, a retailer out of UK ha accumulated a 14.4% stake in Iconix as of January of this year.


Disclosure: Get a head start on analyzing these stocks.  more

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