Some Small Caps, Hit Hard By Market Downturn, Looking Inexpensive

When the markets are wacky like now, small company shares tend to take the brunt of selling. But mining those rejected small caps for shares that were doing well before market volatility set in can uncover companies whose fortunes still look bright, even if their shares got knocked down in the stampede.

In the latest case, the run from small caps began a few months before those ill-fated trading days in August took practically everyone lower.

S&P 500 Stock Chart by YCharts

The YCharts Stock Screener can find small caps with fundamental strengths acceptable to value investors, as well as financial growth and low share valuations. We set the scanner to find companies with market caps between $500 million and $1.5 billion; debt-to-equity ratios of less than one; revenue growth of at least 10% in the past year; and positive earnings. (The Screener, top tab, can be set to whatever level of comfort, on whichever performance indicator, that its user chooses.)

Looking over the list of 185 that met the criteria, we pulled out four interesting companies whose shares were on a roll before the summer madness.

Electronics for Imaging (EFII), market cap $714.20 million.

Electronics for Imaging has reported double-digit revenue growth for seven straight quarters by inventing and selling specialized printers and software for printing, like applications for printing on super-wide pages or remotely. Through new products and cost control initiatives, profit margins have marched up quarterly in double-digits too.

Electronics for Imaging Revenues Chart by YCharts

Until May, investors were up some 30%-plus on EFI shares for the year but that’s dropped with the market to a mere 2.5% gain. The enduring worry about EFI is that one of its biggest customers, like Canon (CAJ) or Xerox (XRX), will decide to compete with its products rather than buy them.

Genesco (GCO) – footwear, market cap $1.37 billion.

Genesco shares have already recovered the late summer drop, and its investors are now up some 53% this year. The company owns hat and shoe stores like Journeys, and Underground Station, as well as online retailers that sell stuff branded with team logos. (Patriots, Cubs, etc.) It purchased the Schuh Group, which has similar shoe stores in the U.K., in June.

Profits have soared since the shock of 2008, and sales have climbed steadily. Its latest quarterly earnings showed 14% sales growth over a year earlier.

Genesco Revenues TTM Chart by YCharts

The company’s price-earnings ratio puts its share price in line with Nike (NKE) and Steven Madden (SHOO). But it’s far cheaper than either company on a price/sales ratio, which is barely 0.60.

Matthews International Corp. (MATW), market cap $1.03 billion.

Matthews makes its money from the bizarre combination of bronze memorials, caskets and cremation equipment paired with a “brand solutions” division that sells printing plates and cylinders (like those used to print on box packaging) and package design services. The company has designed the graphics in store displays for Nike and Coca-Cola (KO).

The death end of the business has grown through acquisitions; brand solutions more internally; and the share price grew some 15% in the first six months of the year.

Investors like the dividend, which is yielding 1% now, as well the company’s cash stash. But higher costs, particularly for steel and bronze are expected to cut into profit margins.

AmSurg (AMSG), market cap $756.80 million.

AmSurg shares were going great guns before this summer, which brought a screeching halt to the roughly 50% rise in the previous nine months. But sellers appear to have had second thoughts, and the share price has recovered at least half that loss in recent weeks.

Amsurg Stock Chart by YCharts

AmSurg owns and operates outpatient surgery centers, which perform operations like minor GI procedures. It eliminated a key competitor in August with an agreement to buy National Surgical Care. On Tuesday, AmSurg reported third quarter earnings and slightly increased its full-year financial forecasts. It reports a growing number of procedures recently after a slowdown last year.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

Filed under: Investing Ideas