Small companies can't get out of diapers
cbs.marketwatch.com
Small company stocks, as measured by the Standard & Poor's 600 Index ($SML), have lost about 28 percent of their value since mid-April. The much larger S&P 500 Index of the largest U.S. stocks is down about 8 percent in the same span. It doesn't matter what these companies do: make tons of money, hire investment bankers to pursue strategic alternatives, report blazing sales. The stocks keep trading at puny levels compared to their much larger cousins in the U.S. stock market... One of them, toymaker Radica Games (RADAF), just unveiled a 56 percent increase in third-quarter profits. The company, which manufactures in southern China, saw its stock rattle lower after the report. At about $13 a share, the Nasdaq-traded shares sell for less than 7 times the $2 a share the company could earn for the entire year. Pssst: mega-companies, whether they're drug makers like Merck (MRK), software companies like Microsoft (MSFT) or industrial giants like General Electric (GE), sell for price-earnings multiples of 30 to 50 times already stated earnings, and sometimes far more...... One of my favorite stories is about Happy Kids, which is a fitting end to this column about diapers. The New York maker of children's apparel (HKID) saw its market value dwindle to about $50 million on Aug. 31 from $100 million or so in May. Happy Kids, benefiting from a Rugrats license with television channel Nickelodeon and a Sesame Street license with Kmart, told investors its gross profit margin had increased to almost 27 percent from 24.7 percent. Talk about growth: sales of $32 million for the second quarter were 117 percent greater than those of the three-month span one year earlier.
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Hopefully more articles like this will remind investors that there are real bargains out there. Not all but many of these cos have demonstrated the ability of consistent growth of both earning and revenue, and most important - positive CASH FLOW. These cos should be rewarded. Too bad it doesn't appear this trend of prejudice will end anytime soon.
aC
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