This article is part of our Rising Star Portfolios series.
Over the next couple of days, I'm once again going to search for great small-cap stocks for my Rising Stars "multivitamin" portfolio using my "Foolish 8" and modified "Foolish 8" screens. Today I'll present the "Foolish 8" criteria, which was developed by Fool co-founder David Gardner to identify profitable, rapid-growth, small-cap stocks:
- Revenues: $500 million or less.
- Earnings and sales growth: 25% or greater.
- Net profit margin: 7% or greater.
- Daily dollar volume: $1 million to $25 million.
- Insider holdings: 10% or greater.
- Share price: $7 or greater.
- Relative strength: 90 or greater.
- Operating cash flow: a positive number.
The contenders
Five companies passed the screen this month:
|
Company |
Market Cap |
Business |
Add to Your Watchlist |
|---|---|---|---|
|
3-D Systems
(Nasdaq: TDSC) |
$1,218 | 3-D printers and products | |
|
Financial Engines
(Nasdaq: FNGN) |
$1,217 | Portfolio management services | |
|
HFF
(NYSE: HF) |
$492 | Commercial real estate services | |
|
Interactive Intelligence (Nasdaq: ININ) |
$716 | Business software | |
|
Textainer Group Holdings (NYSE: TGH) |
$1,739 | Marine container leasing |
Source: Capital IQ, a division of Standard & Poor's.
The new stocks on the list this month are Financial Engines, HFF, and Textainer Group. Dropping off the screen from last month were China Biologic Products, DDI, Ebix (Nasdaq: EBIX), GSI Technology, and iGATE (Nasdaq: IGTE). That leaves 3-D Systems and Interactive Intelligence as our veterans.
Biggie smalls
Here's a look at some interesting metrics for these small-frys:
|
Company |
Insider Ownership |
Forward P/E |
EV/FCF (TTM) |
ROE |
Net Margin |
|---|---|---|---|---|---|
| 3-D Systems |
10% |
70.6 |
46.3 |
16% |
12% |
| Financial Engines |
22% |
78.1 |
NM |
61% |
57% |
| HFF |
19% |
31.5 |
NM |
22% |
8% |
| Interactive Intelligence |
24% |
28.3 |
34.1 |
18% |
9% |
| Textainer Group Holdings |
12% |
14.3 |
NM |
22% |
39% |
Source: Capital IQ, a division of Standard & Poor's. P/E = price-to-earnings ratio; EV = enterprise value; FCF = free cash flow; TTM = trailing 12 months; ROE = return on equity.
The NM above stands for "not meaningful," which is the result of dividing by negative free cash flow. (A couple of notes: In this case I'm using Capital IQ's unlevered free cash flow definition.) If any of these companies look interesting enough for me to research further, I'll delve more into the reasoning behind the negative FCF.
Tomorrow I'll show you the results of this month's Modified Foolish 8 screen, and then talk about the companies that interest me, from both screens, in more depth.
If you're interested in keeping up with any of these companies, add them to your free watchlist by clicking the "add" button in the far-right column of the top table. You can also follow me on Twitter and check out the multivitamin discussion board. Until tomorrow!
