These small-cap stocks are trading at lower valuations despite big gains

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Small-cap stocks are this year’s best performers, but there are still hundreds whose valuations have declined this year, making them potentially attractive investments.

Small U.S. companies derive a greater share of sales and profits domestically than their large counterparts do, so it appears that earnings estimates haven’t yet caught up to the post-tax-cut reality. The reduction in the maximum federal income tax rate to 21% from 35% for companies certainly is a game changer, especially for smaller ones that lack the complex structures that can help large ones greatly reduce their taxable income. A company that was paying the 35% rate before the tax cut would enjoy a 22% boost to after-tax earnings, all things being equal.

We’ve screened small-cap stocks whose forward price-to-earnings ratios have declined despite big gains in the market. But, first, here’s how valuations for the three main S&P indices have changed over the past year.

All forward price-to-earnings ratios are based on weighted aggregate consensus earnings estimates for the 12 months following the date the ratio was calculated:

Index Forward P/E – Sept. 4 Forward P/E – Dec. 29 Forward P/E – Sept. 4, 2017 Total return – 2018 through Sept. 4 Total return – 12 months through Sept. 4
S&P 500 Index












SPX, -0.28%









16.9 18.3 17.6 9.8% 19.2%
S&P 400 Mid-Cap Index












MID, -0.09%









16.8 18.3 17.4 8.5% 19.3%
S&P 600 Small-Cap Index












SML, -0.17%









18.3 17.9 17.3 17.8% 30.9%
Source: FactSet

This is an interesting pattern. All three indices have shown significant gains over the past year, while forward P/E ratios for the large-cap S&P 500












SPX, -0.28%










 and the S&P 400 Mid-Cap Index












MID, -0.09%










have declined. The S&P 600 Small-Cap Index












SML, -0.17%










 breaks the pattern, with better performance and a rising forward P/E.

Here’s a screen of the S&P 500 showing large-cap for stocks whose forward P/E ratios fell despite total returns of 20% or more from a year earlier.

Turning to the S&P Small-Cap 600 Index, there are some differences in the available data from those of the large-caps. Among the S&P 600, FactSet has current and year-earlier consensus forward price-to-earnings ratios available for 498 companies, because Wall Street analysts don’t cover all the small-caps.

We narrowed down those 498 small-cap companies to 39 that met these criteria:

• Stocks returned at least 20% for 12 months through Sept. 4, with dividends reinvested.

• Forward price-to-earnings ratios declined from a year earlier.

• Sales for the most recently reported quarter rose at least 20% from a year earlier.

Here’s the list of S&P 600 small-cap companies that met the criteria, sorted by how much their quarterly sales increased:

Company Ticker Industry Increase in quarterly sales Price/ earnings ratio – NTM Price/ earnings ratio – NTM – year ago Total return – Sept. 4, 2017, through Sept. 4, 2018
Penn Virginia Corp.












PVAC, -3.41%









Oil & Gas Production 236% 6.3 8.9 115%
ProPetro Holding Corp.












PUMP, +0.26%









Oilfield Services/Equipment 115% 7.6 10.0 32%
Shutterfly Inc.












SFLY, -4.43%









Internet Software/Services 112% 40.8 49.9 71%
LHC Group Inc.












LHCG, -1.27%









Medical/Nursing Services 95% 25.3 26.4 53%
First Financial Bancorp.












FFBC, +0.00%









Regional Banks 79% 13.7 15.4 34%
Simmons First National Corp. Class A












SFNC, +0.63%









Regional Banks 71% 13.2 14.1 23%
Cal-Maine Foods Inc.












CALM, +0.00%









Food: Specialty/Candy 61% 23.8 101.7 40%
NMI Holdings Inc. Class A












NMIH, -5.44%









Property/Casualty Insurance 60% 11.7 14.1 102%
Carrizo Oil & Gas Inc.












CRZO, -2.60%









Oil & Gas Production 59% 6.2 11.1 77%
Electro Scientific Industries Inc.












ESIO, -2.39%









Electronic Production Equipment 52% 11.3 18.5 77%
PDC Energy Inc












PDCE, -0.72%









Oil & Gas Production 51% 14.1 228.6 34%
Patrick Industries Inc.












PATK, -0.38%









Building Products 49% 12.7 16.0 35%
Denbury Resources Inc.












DNR, -0.56%









Oil & Gas Production 48% 8.1 14.1 391%
Greenbrier Cos. Inc.












GBX, -1.21%









Trucks/Construction/Farm Machinery 44% 14.4 14.8 36%
Virtus Investment Partners Inc.












VRTS, -2.03%









Investment Managers 41% 9.7 11.3 21%
QuinStreet Inc.












QNST, -4.14%









Advertising/Marketing Services 37% 21.9 26.0 174%
Helix Energy Solutions Group Inc.












HLX, -2.52%









Oilfield Services/Equipment 36% 43.5 135.1 48%
Triumph Bancorp Inc.












TBK, -1.39%









Regional Banks 36% 15.0 15.3 53%
National Bank Holdings Corp. Class A












NBHC, -0.70%









Regional Banks 35% 18.2 23.0 26%
Chart Industries Inc.












GTLS, -0.66%









Industrial Machinery 34% 31.9 34.3 122%
Applied Industrial Technologies Inc.












AIT, +0.65%









Wholesale Distributors 32% 16.5 18.6 35%
Greenhill & Co. Inc.












GHL, -0.55%









Investment Banks/Brokers 32% 19.9 23.5 89%
Callaway Golf Co.












ELY, +0.52%









Recreational Products 30% 23.7 28.7 67%
Federal Signal Corp.












FSS, +3.23%









Trucks/Construction/Farm Machinery 30% 19.2 20.5 38%
LGI Homes Inc.












LGIH, +0.64%









Homebuilding 30% 8.3 10.1 25%
Newpark Resources Inc.












NR, -1.48%









Oilfield Services/Equipment 29% 17.8 35.3 23%
Hub Group Inc. Class A












HUBG, -0.50%









Air Freight/Couriers 28% 19.8 21.8 30%
Great Western Bancorp Inc.












GWB, +0.67%









Regional Banks 26% 13.5 14.1 23%
National Storage Affiliates Trust












NSA, +1.19%









Real Estate Investment Trusts 26% 38.8 93.5 29%
Diplomat Pharmacy Inc.












DPLO, +0.69%









Hospital/Nursing Management 26% 20.7 23.0 21%
DXP Enterprises Inc.












DXPE, -0.23%









Industrial Machinery 24% 26.2 27.7 76%
Boise Cascade Co.












BCC, +2.53%









Forest Products 24% 15.3 17.2 49%
ServisFirst Bancshares Inc












SFBS, -0.12%









Regional Banks 23% 16.6 18.1 27%
First Commonwealth Financial Corp.












FCF, -0.71%









Regional Banks 22% 15.0 15.4 35%
Photronics Inc.












PLAB, -2.82%









Electronic Production Equipment 22% 21.5 25.5 33%
Old National Bancorp












ONB, -0.49%









Regional Banks 22% 14.6 15.8 28%
Alarm.com Holdings Inc.












ALRM, +1.68%









Information Technology Services 22% 48.0 52.8 27%
New Media Investment Group Inc.












NEWM, +0.38%









Publishing: Newspapers 20% 17.4 27.9 24%
Brookline Bancorp Inc.












BRKL, +0.28%









Savings Banks 20% 16.2 16.6 29%
Souce: FactSet

You can click on the tickers for more information about each company.

Here’s a summary of analysts’ opinions about these companies:

Company Ticker Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings Closing price – Sept. 4 Consensus price target Implied 12-month upside potential
Penn Virginia Corp.












PVAC, -3.41%









100% 0% 0% $82.48 $101.60 23%
ProPetro Holding Corp.












PUMP, +0.26%









76% 24% 0% $15.13 $21.38 41%
Shutterfly Inc.












SFLY, -4.43%









40% 60% 0% $77.15 $99.00 28%
LHC Group Inc.












LHCG, -1.27%









90% 10% 0% $100.09 $105.67 6%
First Financial Bancorp.












FFBC, +0.00%









33% 56% 11% $31.50 $33.63 7%
Simmons First National Corp. Class A












SFNC, +0.63%









20% 80% 0% $31.75 $33.75 6%
Cal-Maine Foods Inc.












CALM, +0.00%









20% 60% 20% $49.40 $47.40 -4%
NMI Holdings Inc. Class A












NMIH, -5.44%









75% 25% 0% $22.05 $25.14 14%
Carrizo Oil & Gas Inc.












CRZO, -2.60%









68% 32% 0% $24.23 $34.54 43%
Electro Scientific Industries Inc.












ESIO, -2.39%









100% 0% 0% $21.38 $32.75 53%
PDC Energy Inc












PDCE, -0.72%









71% 29% 0% $53.01 $74.70 41%
Patrick Industries Inc.












PATK, -0.38%









86% 14% 0% $65.35 $80.29 23%
Denbury Resources Inc.












DNR, -0.56%









10% 80% 10% $5.40 $4.73 -12%
Greenbrier Cos. Inc.












GBX, -1.21%









50% 50% 0% $57.85 $59.50 3%
Virtus Investment Partners Inc.












VRTS, -2.03%









14% 86% 0% $128.00 $144.14 13%
QuinStreet Inc.












QNST, -4.14%









83% 0% 17% $14.96 $17.29 16%
Helix Energy Solutions Group Inc.












HLX, -2.52%









87% 13% 0% $9.53 $10.67 12%
Triumph Bancorp Inc.












TBK, -1.39%









86% 14% 0% $43.05 $47.14 10%
National Bank Holdings Corp. Class A












NBHC, -0.70%









33% 67% 0% $40.05 $41.50 4%
Chart Industries Inc.












GTLS, -0.66%









67% 33% 0% $76.21 $89.00 17%
Applied Industrial Technologies Inc.












AIT, +0.65%









20% 80% 0% $76.40 $92.50 21%
Greenhill & Co. Inc.












GHL, -0.55%









0% 43% 57% $27.35 $22.77 -17%
Callaway Golf Co.












ELY, +0.52%









73% 27% 0% $22.98 $23.75 3%
Federal Signal Corp.












FSS, +3.23%









50% 50% 0% $25.72 $27.33 6%
LGI Homes Inc.












LGIH, +0.64%









33% 67% 0% $56.02 $70.20 25%
Newpark Resources Inc.












NR, -1.48%









86% 14% 0% $10.15 $12.43 22%
Hub Group Inc. Class A












HUBG, -0.50%









41% 47% 12% $50.15 $54.87 9%
Great Western Bancorp Inc.












GWB, +0.67%









78% 22% 0% $43.50 $49.11 13%
National Storage Affiliates Trust












NSA, +1.19%









33% 67% 0% $27.69 $30.63 11%
Diplomat Pharmacy Inc.












DPLO, +0.69%









46% 54% 0% $20.23 $25.36 25%
DXP Enterprises Inc.












DXPE, -0.23%









50% 50% 0% $47.01 $57.00 21%
Boise Cascade Co.












BCC, +2.53%









14% 86% 0% $43.45 $47.00 8%
ServisFirst Bancshares Inc












SFBS, -0.12%









0% 100% 0% $43.23 $44.00 2%
First Commonwealth Financial Corp.












FCF, -0.71%









14% 86% 0% $16.79 $18.00 7%
Photronics Inc.












PLAB, -2.82%









33% 67% 0% $10.65 $12.50 17%
Old National Bancorp












ONB, -0.49%









20% 80% 0% $20.40 $21.00 3%
Alarm.com Holdings Inc.












ALRM, +1.68%









75% 17% 8% $57.75 $54.09 -6%
New Media Investment Group Inc.












NEWM, +0.38%









50% 0% 50% $15.81 $15.50 -2%
Brookline Bancorp Inc.












BRKL, +0.28%









40% 60% 0% $18.10 $19.30 7%
Source: FactSet

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