Small Cap Value Style

Schweitzer-Mauduit International, Inc. SWM is one of my favorite stocks held by Small Cap Value ETFs and mutual funds and earns my Attractive rating. Over the past ten years, SWM has grown after-tax profit (NOPAT) by 13% compounded annually. SWM also currently earns a top-quintile return on invested capital (ROIC) of 16%. Despite this outstanding profit growth, SWM remains undervalued. At its current price of ~$41/share, SWM has a price to economic book value (PEBV) ratio of 1.1. This ratio implies that the market expects SWM to grow NOPAT by only 10% from its current levels over the remaining life of the corporation. This expectation is rather low given the 13% NOPAT SWM  growth achieved for the past decade. Impressive profit growth in the past and low expectations for future profit growth create a good opportunity to buy SWM.

Entravision Communications Corp EVC is one of my least favorite stocks held by small cap value ETFs and mutual funds and earns my Very Dangerous rating. Since 2009 EVC has grown NOPAT by only 1% compounded annually.  EVC has not increased ROIC over that time either, still earning a bottom quintile 3%. The company has not managed to earn positive economic earnings in any year since going public in 2000. Despite its poor track record, EVC is priced for significant profit growth. To justify its current price of ~$4/share, EVC must grow NOPAT by 14% compounded annually for the next 10 years. High market expectations and poor historical profits make EVC too risky especially compared to stocks like SWM.

Figures 4 and 5 show the rating landscape of all Small Cap Value ETFs and mutual funds.

My Style Rankings for ETFs and Mutual Funds report ranks all styles and highlights those that offer the best investments.

Figure 4: Separating the Best ETFs From the Worst Funds

Small Cap Value ETFs

Sources: New Constructs, LLC and company filings

Figure 5: Separating the Best Mutual Funds From the Worst Funds

View single page >> |

Disclosure: NewConstructs staff receive no compensation to write about any specific stock, sector, or theme.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.