Watch Out for CAI International
CAI International Inc (NYSE:CAP) operates in the rental and leasing services industry, specifically dealing with containers. Its largest competitor is SBA Communications Company (NASDAQ:SBAC) and that company has a market capitalization of $10.26 billion. Its two key segments are owned container fleet and managed container fleet. Drawing in business to manage container fleet is a key factor in the company’s ability to remain competitive.
In taking a look at the most recent 10-Q for the CAI International Inc (NYSE:CAP)’s first quarter earnings, some interesting information is available. Overall fleet increased, with owned container fleet increasing dramatically while managed fleet decreased significantly. Total revenue for the three months ended in March of 2013 increased by 29% compared to the first quarter of 2012, and net income increased by 12% in this time period. This was strongly attributed to the 44% increase in rental revenue.
Continuing growth in this rental revenue segment, and mitigating the decline in management fee revenue are two factors that could further fuel the growth of this company. The operating expenses for the rental revenue segment increased by 52% in this period though, and this is something I would like to see increase by less than the amount of the revenue increase.
Can ITT School the Industry?
ITT Educational Services, Inc. (NYSE:ESI)’s stock has been hammered over the past year. Earnings are expected to fall this year to $3.86 per share, down from $8.25 per share last year. Next year, earnings are projected to be $2.49 per share. This largely explains the decrease in share price.
ITT International operates in the educational services industry. It is the company that has commercials on television for ITT Technical Institute. It competes against universities, community colleges, and trade schools for potential students that would like to pursue a degree and/or certification in a technical field.
The largest factor in the company’s success is how well it competes against other schools to bring students to it. This is a difficult industry to operate in, as it competes with schools such as DeVry Inc. (NYSE:DV) to bring in students that typically need to fit work in along with school.
In looking at ITT International’s 10-Q for the quarter ending in March of 2013, some things are identified as catalysts for future growth. Its growth strategy is centered around providing value to its students. Total student enrollment is at a record 71,000 for the past four quarters as of March 31, 2013. This, however, represents a 15.4% decrease from a year ago. This enrollment level shows a short term upswing, which hopefully is an indication that the enrollment level can move back higher to where it was when the company was earning more money. This is the single most important catalyst to be able to earn the company more money.
Reaching out to new potential students, and being able to deliver them value, are keys to achieving this. Providing financial aid and being able to find them jobs are key points to focus on in bringing in more students. The company attributes the decrease in enrollment to students graduating in the period, and the metrics showing that student persistence has been steady shows that they are keeping the students in school at about the same rate.
And the Winner Is
In conclusion, the one stock I love here is CAI International Inc (NYSE:CAP). The company has grown at a high rate over the past five years, is expected to grow more this year, and is also expected to grow steadily over the next five years. This is a solid company in my opinion with a stellar recent record of earnings and a solid future in front of it.
I like the other companies as well, with DICE HOLDINGS, INC. (NYSE:DHX) looking good to me based on its revenue growth. ITT Educational Services, Inc. (NYSE:ESI) looks to me as a stock that has the potential to double in a year or two if it can recapture the student enrollment it had a year ago.
The article 3 Highly Profitable Small Cap Stocks originally appeared on Fool.com.
Anthony Parsons has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anthony is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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