18 Small-Cap Stocks that Could be Undervalued Based on Multiples

In addition to earnings and book multiples, we consider sales and EPS growth to filter these stocks.

Checking the earnings and book value multiples is one of the easiest ways of finding potential value stocks. In fact, a large number of academic literature that establishes the outperformance of value factor. For example, Fama and French’s 3 factor model uses the term HML, or High minus Low, to denote the value premium, which is the excess return a value portfolio generates over a growth portfolio. HML is simply a comparison between High Book to Market stocks and Low Book to Market stocks.

High Book to Market means a low Price/Book ratio. It is merely an inversion.

In this screen, we consider High Book to Market, and then we also filter the universe of small-cap stocks (another of the Fama/French factors from their 3 factor model, Small minus Big, or SMB) with Price/Earnings multiple and require a growing EPS and Sales in the past 5 years.

We look for low P/E, P/B and P/S and a positive 5 year average EPS and Sales growth. We also filter for stocks between $30 million and $2 Billion in market cap.

We found 18 stocks that satisfy this screen.

Of course, this is a screen, and therefore only shows up stocks that are likely to be undervalued. To determine if any of these stocks are truly undervalued stocks that deserve a place in your portfolio, you will need to dig deeper in the fundamentals of the business and estimate their intrinsic value.

In this article, I will list the screener results (all 18 stocks) below. I will also point out the stocks that I am interested in doing further due-diligence. And then over the course of next few weeks, I will publish my analysis for the paying members.