January 2024 high-quality small-caps
Here’s a list of high-quality small-caps for January 2024.
For this list, we define quality companies as companies with high return on capital, expected growth, a decent balance sheet, sustainable debt levels and that don’t dilute shareholders:
Enfusion - $ENFN
CI&T - $CINT
Malibu Boats - $MBUU
Ramaco Resources - $METC
ProPetro Holding Corp. - $PUMP
Using the pevaluator stock screener, we can find companies that are in the bottom 50 percentile by market cap but rank high by the following metrics:
Revenue growth
ROIC
Debt/FCF
Assets/Liabilities
Change in shares outstanding
Valuation matters!
It’s easy to overpay for a good thing. Just because a company looks good on paper doesn’t mean one should just go ahead and buy it. We need to determine a price that makes sense for us.
Let’s take a look at the first two companies in the list, both in the IT sector, and their valuations based on the market model we’ve defined.
Note these are not buy/sell recommendations. The valuations below are calculated using a personalized market model that might not be suitable for all investors. You can create your own market model for free using pevaluator.
Potentially overvalued - $ENFN
Enfusion fits our criteria for growth, returns and a sound balance sheet.
The platform came up with a 24.3 fair P/E based on future growth, ROIC and assets/liabilities. Based on the Debt/FCF and change in shares outstanding, which are both great, we’re also left with the base 10% margin of safety.
Based on the $0.2 EPS which analysts are forecasting, we come to a fair price of $5.8 and a buy price of $5.2.
Potentially undervalued - $CINT
CI&T also looks good on paper.
Its target P/E is lower than $ENFN, mostly because it has a slightly lower ROIC and a worse assets/liabilities ratio. In addition, it has a higher margin of safety (13%) due to larger debt levels and less share buybacks.
Even so, using the $0.6 in estimated EPS, we come up with a fair price of $12.8, so $CINT is potentially undervalued
