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.

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.

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

Industry: Resorts and Casinos

Market Cap: $124.19 million

Price: $4.72

PEG Ratio: 0.39

Industry: Trucking

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Market Cap: $460.66 million

Price: $20.09

PEG Ratio:0.50

 

Industry: Management Services

Market Cap: $184.68 million

Price: $6.03

PEG Ratio: 0.89

Industry: Catalogue & Mail Order House

Market Cap: $631.72

Price: $24.14

PEG Ratio: 0.58

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 necessarily 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.

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