Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
doesn’t like a bargain?I found two
especially interesting deals in Crystal Equity Research’s alternative energy
indices.Both are trading near ten
times net earnings.Yet, the enticing
earnings multiple might be only part of the story. FutureFuel
Corporation (FF:NYSE) is trading near
$13.50 per share.The stock has gapped
down in price twice in the last six months, trailing off after each leg
down.The stock now appears
in Missouri, FutureFuel produces biodiesel and biobased speciality chemical
products.In the twelve months ending
June 2014, the company reported $396.9 million in sales, providing $53.5
million in net income or $1.52 per share.The company converted 9% of sales to operating cash.That might seem impressive, but what has
investors in a funk is that sales are shrinking.In the June 2014 quarter the company reported
a weak $68.0 million in total sales, compared to $106.0 million in the same
quarter in the prior year.
FutureFuel probably is not the bargain that the low earnings multiple
suggests.A review of recent trading
patterns suggests the stock has so much negative sentiment that it could trade
as low as $5.00.
other stock trading near ten times net earnings is Flexible Solutions International (FSI:NYSE).The company develops and sells specialty
chemicals that slow the evaporation of water.Its HEATSAVR, ECOSAVR and WATERSAVR products are marketed to owners of
large water bodies such as swimming pools, potable water storage tanks,
livestock watering ponds, aqueducts and irrigation canals.
Solutions reported $14.5 million in total sales the most recently reported
twelve months, providing $1.9 million in net income or $0.12 per share.Trading near $1.40 per share, the stock is
valued at 11.6 times trailing earnings (ok, this one is priced at a bit more
is a micro-cap stock and might not appeal to some investors. Unlike the stock
of FutureFuel, which appears to have been broken, FSI shows considerable
strength.A review of recent trading
patterns in a point and figure chart suggests that stock formed a ‘bear trap’
in late July 2014.This would suggest
that a reverse is in formation.Indeed, the
price objective for FSI is a remarkable $4.00.
is some risk in investing in small companies like Flexible Solutions.It might be easy enough to put on a long
position, but liquidating a position in a small-company with limited shares in
its public float can be a cumbersome and expensive proposition.Average trading volume for FSI is 360,000
shares per day, which might make it tough to beat a hasty retreat if things go
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies
mentioned herein. FF is included in the BioFuel Group of the Beach Boys Index.FSI is included in the Water Conservation
Group of The Mothers of Invention Index.