Micro and smallcap stocks have put in large gains this year outpacing their larger counterparts. The S&P 500 is up just over 4.91% while the Russell 2000 is up around 10% through July 2018.
If you’re worried that microcap stocks have gotten ahead of themselves, but you still want to put money to work in these stocks, a value screen makes sense. One way to do this is to look at low price-to-earnings (P/E) stocks.
But, a low P/E ratio could also mean a troubled stock. These three microcaps have both low P/Es and earnings growth this year of over 20%. That’s quite a cushion for some value
With a P/E of .58 Lifetime Brands, Inc. (NASDAQ: LCUT) makes a lot of the products we use everyday from Farberware, Kitchenaid, and Pfaltzgraff.
Falling earnings in early 2018 have hampered the stock price, but management appears to have righted the ship. Coming off the low base, earnings this year are now expected to grow over 120%. The company is projected to maintain a low 6.39 P/E ratio next fiscal year.
Trading around $13, well below its book value of $16.73, Lifetime Brands could easily put in gains in the second half of the year to get back to a normal valuation.
SeaChange International, Inc. (NASDAQ: SEAC) is another microcap that struggled early in 2018 but has regained its footing. The company has a P/E ratio of 6.97 and is expected to grow earnings this year over 123%.
SeaChange provides personalization services for Video-on-Demand (VOD) providers. This allows end users to get notifications of events (a big play in a game you aren’t watching). They can then switch what they are watching (to 5 minutes before the big play) or choose to ignore the notification.
With a mean analyst target price of $4.25, and trading at only 1.38 times book value, SeaChange International looks priced for additional gains in 2018.
Finally, let’s look at a company that may be benefitting from the current trade climate, but still retains a modest valuation. Olympic Steel, Inc. (NASDAQ: ZEUS) has been trading in a range between $20 and $25 for the first half of 2018.
The stock has 30 facilities in the U.S. and has a P/E ratio of 9.66. At its current price of $21.63 it also trades below its book value of $24.61.
With earnings-per-share growth this year of over 106%, and a forward fiscal year P/E of only 9.76, Olympic Steel appears to be a value play worth a second look.
Even a return to $24, which it has touched several times in the past few months, would give an almost 11% gain. With trading tariffs beginning to kick-in, Olympic Steel may be due for a nice second half of the year.
If you missed the microcap gains of the first half of 2018 it doesn’t mean you’re sidelined for the rest of the year. Seeking value in your stocks, like that available in Lifetime Brands, SeaChange, and Olympic Steel, should provide both gains and downside protection as we finish out 2018.
Disclaimer: The author and Spotlight Growth has no positions in any of the stocks mentioned in this article. Nor does either party currently have any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.
Article By: Steven Adams
