Finding small-cap stocks that have strong earnings and strong growth over the past few years can provide insight into potential long-term winners. Two stocks highlighted here have some exciting attributes that will be discussed to potentially uncover some great value for shareholders.
I used a stock screen that focused on small-cap companies. It also looked for companies with high profit margins and ones that have experienced significant EPS growth over the last five years.
The two stocks found that will be presented today are: Irsa Inversiones y Rprsntcins SA (ADR) (NYSE:IRS) and Silvercorp Metals Inc. (USA) (NYSE:SVM).
The following is a one-year price chart for these companies so that we can compare their performance against that of the S&P 500 for the same time period.
Upon looking at the chart, it is apparent that these stocks collectively have underperformed the S&P 500 over the past year by a wide margin. Past results are not necessarily indicative of future returns, however.
IRSA Investments: A deeper look
Irsa Inversiones y Rprsntcins SA (ADR) (NYSE:IRS) currently has a whopping dividend yield of 8.5%. Analysts expect that the company will earn $1.09 per share this year and $1.27 per share next year. This strong annual growth over the past five years slowed down a bit this year. In its most recent earnings release, the company earned 66 cents per share for the quarter ending in December of 2012, besting the analyst estimate of 40 cents per share.
IRSA Investments operates in the real estate development industry and is a leading real estate company in Argentina. It competes against larger real estate development companies in South America such as DLF Limited. Managing shopping centers and office buildings is its primary business.
For the nine months ending in March 2013, Irsa Inversiones y Rprsntcins SA (ADR) (NYSE:IRS) reported strong results. Net income increased 94% in this time period compared to the same period a year ago.
Shareholders’ equity also increased by about 6%. Revenue from its shopping center segment grew by 22% in this time period. This impressive growth, if it can be continued, is a segment that can become a superstar for the company.
Tenant sales grew by an even stronger 24%, with portfolio occupancy currently standing at 98.7%. Continuing growth in tenant sales and is another strong potential catalyst for further share price increases.
The benefit that this company has is that it focuses on the real estate market in Argentina, which is more focused than, say, South America in general. This, however, can be a hindrance if real estate prices there were to fall significantly. As long as the real estate market is in good shape, this focus on its market should be facilitated by strong industry contacts and knowledge acquired over the years. This should provide a significant barrier to entry for any other company to compete in this market. Making sure key employees sign non-compete agreements is definitely something that should be considered.
Silvercorp Metals vs. Silver Wheaton
Silvercorp Metals Inc. (USA) (NYSE:SVM) is currently trading near its 52-week low of $2.52 per share. It has a current dividend yield of 3.9%. The company has grown its earnings by 26.52% per year over the past five years. Analysts have recently lowered their estimates for next year’s earnings as that has now gone to $0.29 per share from $0.54 just 90 days ago. This is a large factor as to why the share price is currently testing its 52-week low.
Silvercorp Metals Inc. (USA) (NYSE:SVM) operates in the gold and silver mining industry and has mines in Canada and China. Its key competitor is Silver Wheaton Corp. (USA) (NYSE:SLW) and that company has a much larger market capitalization of over $8 billion.
Silvercorp Metals Inc. (USA) (NYSE:SVM) is sensitive to the demand for precious metals and also to the price of commodities. Falling commodity prices and/or a drop in production are key risk factors that could hinder the company’s ability to remain competitive.
