Brodie Hinkle, a senior at the University of Oklahoma, is a contributor to the Acquirer’s Multiple. Brodie is a double major of finance and energy management. He will be periodically writing opinionated articles about individual companies that show up on the stock screeners. If you’d like to contribute an article, please contact me at firstname.lastname@example.org. Contributors receive complimentary access to the screeners.
Today I would like to do a lightning round to touch on the top 3 ranked Micro/Small Cap stocks according to Tobias Carlisle’s screener on www.acquirersmultiple.com. Little known information can generally be found on each stock of this particular capitalization window, therefore, I have taken the initiative to dig into these company’s’ financials and search for untapped growth opportunities. My final goal is to educate and provide illustrations as to how these companies generate their revenue, as well as, what makes them unique to their industry.
First, Enzon Pharmaceuticals Inc. (ENZN) is a $42.9 million capitalization company that generates revenues through the sales of four main drugs: PegIntron®, Sylatron®, Macugen® and CIMZIA®. All of Enzon’s products have the general theme of combating life-threatening viruses, cancerous agents, and various forms of arthritis. Enzon’s largest revenues come from their product, PegIntron®, which is marketed by the pharmaceutical powerhouse, Merck & Company. Prior to 2013, ENZN spent much time, effort, and capital to generate high-quality drugs through their R&D Department. Enzon believes the creation of their four primary drugs has created a healthy stream of revenues for the foreseeable future, in which they are not currently working on any further products and do not plan to do so for now. From an investment standpoint, I see this as both a strength and weakness. Due to the elimination of R&D efforts, all operating expenses are at a minimum, which makes ENZN an efficient company that is sitting on streams of royalty revenue. In contrast, it is alarming that ENZN is not working to expand their product base in order to create larger streams of revenue. As a $42.9 million capitalization company, Enzon has a ton of room for growth and expansion if they were to fixate their efforts on creating more value for the company. From a financial standpoint, ENZN is generating very fat returns, with a P/E of 1.8, in comparison to the industry average of 35.5. Their P/B is 2.4, in comparison to the industry average of 7.6. Furthermore, ENZN’s D/E is 0.167. In conclusion, Enzon essentially keeps every dollar they earn from sales. Of the $31 million in revenue they collected last year, $29 million went into retained earnings. ENZN is a relatively simple company and we see them as a viable option for investment for the foreseeable future.
Second, Sino-Global Shipping America, Ltd (SINO) is a $6.9 million corporation with most recent annual sales reaching $11 million for the year ending June of 2015. Sino-Global is a shipping agency, which offers logistics and ship management services. Their most viable services include shipping agency services, shipping and chartering, inland transportation management, and ship management services. The bulk of SINO’s revenues are derived from clients located in the People’s Republic of China and Hong Kong. Recently, SINO acquired Longhe Ship Management, a ship management company based in Hong Kong. Sino-Global has steadily increased their profitability and efficiency in recent years. Furthermore, SINO’s total assets and equity have consistently increased, providing shareholders with more value. A few prevalent risks come to surface when viewing SINO’s financials. The company’s size, $6.9 million, is of concern for both volatility and liquidity purposes. If a large investor were to purchase/sell large lump sums of SINO shares, it would be of prudent practice to use a limit order on the transaction. Also, it is of concern that SINO’s revenues have dwindled over time. We would like to see Sino-Global revamp their sales program to build clientele so that shareholders could reap the rewards from revenue growth. SINO has a current P/E of 7.4, which is a strong return in relation to its peers P/E of 25.8. Furthermore, Sino-Global has a P/B of 0.5, compared to the industry average of 5.5. Overall, SINO is a risky play, but we could see this company turn operations around to create profitable opportunities for shareholders.
Lastly, G Willi-Food International Ltd (WILC) is a $58.9 million capitalization company with annual revenues of $329 million. WILC develops, imports, exports, markets and distributes food products. G Willi-Food specializes in food products consisting of canned vegetables, packaged fruits, pickled vegetables, pasta, and cooking oils. G Willi-Foods is most popular in Asia, but has indeed penetrated into the American markets. For instance, G Willi-Food owns the brand Del Monte, which is a major supplier of canned fruits and vegetables. WILC owns 14 very strong brands that effectively pierce into global markets, providing canned food to numerous consumers. From an investment standpoint, it is very attractive to see this company expanding its reach throughout global markets, which develops widespread opportunities that result in continued growth. WILC has done a fantastic job increasing both asset and equity totals for shareholders. They currently possess a P/E ratio of 23.3, which is strong in comparison to the industry average of 29.8. Also, WILC’s P/B ratio is 0.6 in comparison to the industry average of 3.3. We see G Willi-Food as a strong candidate for investment due to its global presence and strong brands. Throughout all stages of the economic cycles, we see WILC continuing to generate strong sales due to their particular position within the industry. As is a theme in the micro/small capitalization stocks, we see risks deriving from the particular size of WILC, but in conclusion we see fantastic opportunity for investment.
In conclusion, we see Enzon, Sino-Global, and G Willi-Food as great candidates for investment. Tobias Carlisle has done a fantastic job laying out the foundation of quant value investing through means of the Acquirer’s Multiple, and these three positions illustrate compelling opportunities in compliance to Tobias’ benchmarks. We would like to forewarn all investors that the micro/small capitalization sector of stocks will endure volatile market swings. Therefore, investors must thoroughly understand ones risk tolerance prior to executing positions into this market capitalization sector.