That said, this rate of growth will be higher when the company completes its tender offer and buyback (if the tender offer is complete as the company has already been forced to raise its offer).
One of the issues holding back Smith & Wesson Holding Corp (NASDAQ:SWHC) is not the lack of demand, but the lack of capacity to keep up with demand. The company recently raised $50 million to try and grow its production capacity.
Smith & Wesson Holding Corp (NASDAQ:SWHC) is set for growth and this growth is currently cheap, the company trades at a forward P/E ratio of only 7 and a PEG ratio of 0.30, indicating that the company offers growth at a reasonable price. Moreover, the company is well capitalized with a quick ratio of 2 and a debt to equity ratio of only 24%.
Having said all of that, one of the reasons behind the company’s low valuation is the speculation that it could be shut down if firearms are regulated in the U.S. This is a huge issue that is overhanging the company, but currently, it is not a realistic proposition, so the company looks attract at these levels.
An attractive retail proposition
Lastly, one of the best performing company’s in the Russell 2000 is Francesca’s Holdings Corp (NASDAQ:FRAN), a seller of women’s apparel and accessories. Unfortunately, Francesca’s Holdings Corp (NASDAQ:FRAN) stock has fallen recently as investors and the market have been concerned about its falling comparable same-stores sales, and the ability to maintain its profitability and customer loyalty in the cut-throat retail environment.
In particular, Francesca’s Holdings Corp (NASDAQ:FRAN) sold off after first-quarter results, when the company reported that comp sales growth came in at only 2% and EPS missed estimates. In addition, the company guided for full year EPS to be between $1.27 and $1.30 — the Street expected $1.30.
But enough about what Francesca’s Holdings Corp (NASDAQ:FRAN) has reported, one of the company’s main selling points is its ability to grow, in particular, the company’s quick investor turnover, low selling costs, and high revenue per square foot figures. Indeed, Francesca’s Holdings Corp (NASDAQ:FRAN) reported a return on equity of 77% during 2012 and an operating margin of 26%, both figures were higher than those of its ten largest peers in the apparel stores sector, which stood at 23% and 12%, respectively.
Elsewhere, Francesca’s Holdings Corp (NASDAQ:FRAN) is well capitalized with a quick ratio of 2.2 and no debt, cash is worth $0.77 per share.
Foolish summary
Domestic small caps have been on a good run recently. The strong U.S. economic recovery and the lack of exposure to international currency fluctuations has driven growth. These three companies above have unique business models and present decent investing opportunities with plenty of growth ahead. The cheapest and best appears to be Smith & Wesson Holding Corp (NASDAQ:SWHC), but Francesca’s business model is also attractive.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Winning Small Caps Set for Further Growth originally appeared on Fool.com is written by Rupert Hargreaves.
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