Small Cap Growth

Goal/Rationale of the Screen

The goal of this screen is to find small cap stocks with growth rates that are in the top 20% of the market. Since many small cap stocks are usually new names in the very beginning of their growth cycle, this is the time when they will typically grow at their fastest. This screen zeroes in on the top performers. But also adds in a valuation metric to make sure these companies still look like great buys.

Criteria

Strategy

Small cap stocks, early in their growth cycle, will typically put up their biggest numbers and grow their fastest. Investors looking for stocks with the potential to double or triple or quadruple or more in a relatively short period of time will find their best odds come with getting into small caps. Of course, in order for that potential to exists, there has to be a reason for it to do so. And that means the growth rate to get there. This screen sets out to find the top performing companies with growth rates in the top 20% of the market. It also adds in the PEG ratio to make sure these high fliers aren't getting too overheated. A PEG of

Things to Watch Out For

Often times, smaller cap companies will show big growth rates. But sometimes small changes in small numbers can equate to big percentages. So pay attention to their earnings estimates and earnings estimate revisions as well. Even a small one penny change up or down can be quite significant, especially if the company is only expected to earn a few cents in the first place. For example: a company that expects its earnings to go from 1 cent to 6 cents is a 500% growth rate. If the consensus falls however to 5 cents, that's still a 400% growth rate, but it's also 100 points lower than expected for a 20% downward estimate revision. This can cause the price to drop, in spite of its 400% projection. So keep your eyes on the earnings estimates and earnings estimate revisions.

Summary

Small cap stocks can be exciting and rewarding, if you do it right. But by combining big growth, with smart valuations, and staying away from extremes, you can enjoy all the benefits that small cap stocks have to offer and get into new names you may never have even heard of before. But if you stop and think about it, some of your best stocks right now or some of the most well known brands were once small cap stocks that you may never have even heard of back then - but now you do. This screen will help find those types of companies today.