Five Undervalued Small-Cap Service Stocks

Jacob Harper |

The service industry does not garner quite the market attention of tech and healthcare. But growth is growth, and there are plenty of service-oriented companies capable of garnering major returns even if they’re not on the cusp of releasing a nifty new gadget or garnering FDA drug approval.

To isolate service plays we felt might be poised to grow, we applied three pieces of criteria.

Methodology

We wanted to find small cap stocks that possessed solid fundamentals, high marks from analysts, and a chance for growth based on a classic value investing formula. Here’s the specifics we used to delineate the plays we felt might grow in 2014:

#1 The company has to be included in our Small-Cap Stars project.

In creating our Small-Cap stars portfolio. Equities.com required service stocks to meet certain benchmarks, like having a large percentage of institutional holdings.

#2 Analyst consensus is at least a “buy” on the stock.

While we trust our own metrics, it doesn’t hurt to have the agreement of a majority of analysts on certain obscure plays.

#3 The company’s PEG ratio is less than one.

PEG ratio is simply price/earnings divided by annual EPS growth. Companies with a PEG ratio less than 1 are thought to be undervalued by the market, and the lower the PEG the more undervalued the company is.

Findings

We found five service plays that fit this model. They are:

Lakes Entertainment (LACO)

Industry: Resorts and Casinos

Market Cap: $124.19 million

Price: $4.72

PEG Ratio: 0.39

Celadon Group Inc. (CGI)

Industry: Trucking

Market Cap: $460.66 million

Price: $20.09

PEG Ratio:0.50

 

The Hackett Group (HCKT)

Industry: Management Services

Market Cap: $184.68 million

Price: $6.03

PEG Ratio: 0.89

PC Connection Inc. (PCCC)

Industry: Catalogue & Mail Order House

Market Cap: $631.72

Price: $24.14

PEG Ratio: 0.58

Navios Maritime Holdings Inc. (NM)

Industry: Shipping

Market Cap: $967.68 million

Price: $9.41

PEG Ratio:0.59

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
NM Navios Maritime Holdings Inc. 1.36 -0.08 -5.56 996,522
CGI Celadon Group Inc. 9.15 0.15 1.67 852,681
LACO LACO n/a n/a n/a 0
PCCC PC Connection Inc. n/a n/a n/a n/a
HCKT The Hackett Group Inc. 18.04 -0.10 -0.55 90,892
DBATF DBA Telecommunication Asia Holdings Ltd. Ordinay S n/a n/a n/a 0

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