Dream Stocks for Small-Cap Investors

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Investors are always hunting for the next big stock -- the dream stock whose price increases several times over when the market finally discovers it. It's easy to look back and discover the 10 best stocks of the past decade. But I'm more interested in the tools that can help me evaluate tomorrow's greatest companies.

Motley Fool CAPS offers a variety of resources to aid Fools in finding tomorrow's leaders. Our 140,000-member community teems with investors helping each other beat the market.

We'll enlist CAPS to screen for small-cap companies, then get the story behind some of its more highly rated stocks. CAPS' nifty screener will help us find stocks with:

• A market cap between $100 million and $1 billion.
• A three-year revenue growth rate of at least 20%.
• A price-to-earnings ratio of less than 25.

Then we'll tap the collective intelligence of our CAPS members to see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

Opinions with the numbers
Below is a sample of stocks our screen returned. You can run this screen yourself -- remember, though, that your results may differ from ours as the market changes.

Company	Revenue Growth Rate, Past 3 Years	CAPS Rating (out of 5)
Infinera (Nasdaq: INFN)	126.9%	*****
China Security & Surveillance Technology (NYSE: CSR)	98.5%	*****
KMG Chemicals (Nasdaq: KMGB)	38.2%	****

Data and star rankings from CAPS as of Oct. 8.

Infinera
Infinera has suffered through a string of losing quarters, but CAPS members still give it a hefty five-star rating, seeing an eventual turnaround. The company continues to operate with no long-term debt on its balance sheet and it recently added Telefonica to its customer list after one of its major customers, Level 3 Communications (Nasdaq: LVLT), changed teams and took sides with Huawei Technologies.

The company's also pushing the technology envelop with its upcoming 40 gigabit/second photonic integrated circuit, and the company sees a solid opportunity for growth in the expanding submarine market as the use of the Internet continues to expand rapidly around the world.

A total of 98% of the 1,089 CAPS members rating Infinera expect it to bounce higher and outperform the market.

China Security & Surveillance Technology
China Security & Surveillance provides security and surveillance systems and accompanying software in China, competing with big multinationals such as General Electric (NYSE: GE) and Honeywell (NYSE: HON). As a small cap in a big market, CAPS members like the company's potential growth opportunities in the public and private sectors. The company's efforts to gain market share have put a damper on margins lately, but the top line remains solid, with total revenue increasing 53% in the second quarter and organic revenue increasing 89.7% year over year.

The company plans to keep up the rapid pace to meet demand and many investors like that the Chinese government openly supports the security industry. Despite risks to its revenue stream, 98% of the 968 CAPS members rating China Security & Surveillance Technology give it the thumbs-up to beat the S&P.          

KMG Chemicals
While diversified giants like Dow Chemical and DuPont (NYSE: DD) work to recapture their past earnings' charm, specialty chemicals maker KMG Chemicals, at a fraction of the size, announced preliminary fiscal 2009 results that included record sales and earnings for the company. In its recent quarter, it echoed semiconductor companies with its incremental improvement in its electronic chemicals segment, which it acquired in January 2008. Its wood-treating chemicals business saw particular strength, helped by a decline in raw materials prices. It worked throughout the year to strengthen its balance sheet and is looking to grow through another acquisition this fiscal year.

CAPS members like the long-term outlook for demand for chemicals, giving 93% of the 213 members rating KMG Chemicals reason to expect it to outperform the broader market index.

Let 140,000 members be the jury
The collective wisdom of a huge pool of investors can help give context to a page of numbers from a stock screen. But individual investors are still the best judges of what to do with their own money. Fools should always perform their own due diligence.

Happily, it's easy to chime in with your own opinion. If you agree that these companies present dream opportunities -- or see more of a nightmare instead -- simply scroll down and add your thoughts in the comments box.