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5 Small Companies Offering Big Stock Gains

As a group, small-company stock tickers are providing just-OK returns this year. Those in the S&P SmallCap 600 index are up an average of 4.7%, vs. 4% for larger companies in the S&P 500 index.

But a handful of small companies are producing huge gains. That’s usually the case with small companies, since their returns tend to have what statisticians call a high standard deviation — a broad scattering — compared with large companies. Consider that 24 companies in the SmallCap 600 index have doubled their stock ticker prices this year, compared with only five large companies in the 500 index. The top-gaining small company, retailer SteinMart (SMRT), is up nearly eightfold in price, while the winner among large companies, XL Capital (XL), has merely tripled.

XL and SteinMart aren’t quite flourishing. Their share prices have multiplied this year because investors left them for dead at the end of last year, not because of fast growth. Other SmallCap 600 companies, however, are up big this year because their businesses are expanding. Below I’ve listed five with rising sales and profits.

Taleo (TLEO) makes software that companies use to hire, indoctrinate and judge workers. Users pay recurring fees. Over the five years ended 2008, application revenues grew at an average compounded rate of 31% a year. Shares are an ambitious 24 times this year’s earnings forecast, but sales are expected to increase 17% this year and the company has more cash than debt.

Synaptics (SYNA) makes touch pads for notebook computers and touch screens for mobile phones. It’s benefiting indirectly from the popularity of Apple’s (AAPL) iPhone. While Apple orders its screens from Toshiba, Apple’s competitors are calling on Synaptics to supply screens for their iPhone wannabes. Synaptics’ sales jumped an estimated 30% during its fiscal year ended June 30. Its shares are 16 times earnings. One forecast by Oppenheimer & Company, an investment bank, has earnings per share nearly doubling by 2012. It assumes the number of touch-screen phones sold by then will jump to 400 million from 50 to 60 million over the past year, that prices for the modules will contract to $5 from over $10 today, and that Synaptics will capture one-third of the market. Oppenheimer says the company currently has two-thirds of the notebook track pad market. (The forecast doesn’t include a rise in touch-screen use in notebooks, although the next version of Windows, expected in October, includes enhanced support for such technology.)

True Religion (TRLG) proves the present recession hasn’t completely snuffed out extravagance. The company sells $300 blue jeans that are faded and frayed just so, allowing the rich to look fashionably poor, while signaling with the giant label on the rear that they are, in fact, rich. Sales are expected to increase 11% this year. Shares fetch a rather working-class 11 times earnings.

Two more: I first <a href=”http://www.smartmoney.com/Investing/stock tickers/Air-Methods-Earns-Its-Wings-19978″>recommended shares of Air Methods (AIRM), which uses mostly helicopters to fly the gravely injured or ill to hospitals, nearly three years ago. They’re up just over 10%, vs. a decline of about 30% in the S&P 500. The company still looks prosperous and fairly priced. Cheap eatery Cracker Barrel Old Country Store (CBRL) barely grew its sales in its most recent quarter, but increased its earnings per share 13% on lower costs for ingredients and labor. Shares are 10 times earnings and come with a 2.7% dividend yield.

Find details on all five companies on the table below.

Screen Survivors
Company Ticker Industry Market
Value
($mil.)
Share
Price
Price
Change
YTD
(%)
Forward
P/E
Data as of July 10, 2009
Source: Thomson Reuters
Air Methods AIRM Air Services 314.23 $25.78 61.23 12
Cracker Barrel Old Country Store CBRL Restaurants 662.11 29.28 42.20 10
Synaptics SYNA Computer Hardware 1169.78 34.10 105.92 16
Taleo TLEO Business Services 541.96 17.35 121.58 25
True Religion Apparel TRLG Clothing 497.67 19.64 57.88 11

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