Companies with small market capitalizations are less visible and usually less known than large to mid caps, and thus a disconnect between the market and a small-cap company's valuation often occurs. They are also less frequently traded than most of the bigger well-knowns and blue-chips, which often contributes to the lack of analyst coverage and news available in relation to many small-cap companies. Small-caps also often carry much higher risk than their larger counterparts; but more risk sometimes means more upside- especially if the small-cap is discounted or even deeply discounted due to a cold shoulder from Mr. Market out of pure ignorance and not because of the company's fundamentals. Here are a few small-caps that should probably receive more attention:
Up in the clouds...
QLogic Corporation (NASDAQ:QLGC) is a global leader in high performance networking. The company provides Converged Network Adapters for the emerging Fibre Channel over Ethernet (FCoE) market, Ethernet adapters, Fibre Channel adapters and switches, iSCSI adapters, and routers. QLogic provides components such as adapters, switches and other products relating to networking to larger companies (like Cisco Systems, Inc. (NASDAQ:CSCO), Oracle Corporation (NASDAQ:ORCL), Dell Inc. (NASDAQ:DELL), International Business Machines Corp. (NYSE:IBM)... just to name a few). QLogic's converged network adapters (CNAs) are popular products that are vital to cloud computing systems. The company now trades at a lowly P/E of around 6. This valuation doesn't seem fit for a company that is a solid player in the cloud computing revolution with literally no debt and almost a half-billion in cash. The company also maintains an impressive current ratio of around 8. Qlogic is also trading closer to its 52-week low than its high- even after recently beating estimates and popping a little in share price.
A recently upgraded software related small-cap
Ebix Inc (NASDAQ:EBIX) provides on-demand software and e-commerce solutions to the insurance industry. The company trades at about 9.5 times earnings with a market capitalization of around $626 million. The company has a higher debt to equity ratio at approximately 23.7, as well as a troubling 42.2% of its float being shorted. The company does, however, have an adequate current ratio of 1.26 with $31 million in cash on its balance sheet. There appears to be newly found optimism for the stock as well, as it recently caught an upgrade by TheStreet. The upgrade was attributed to increased revenues (26.3%), which also improved the company's earnings per share (which improved by around 12.2% YOY for the quarter). Growing earnings per share often means growing share prices, but the sustainability of the increased earnings needs to be followed closely. TheStreet has upgraded Ebix Inc (NASDAQ:EBIX) from hold to buy, which might inject some momentum into the stock going forward.