Deepening supply chain disruptions due to the Russia-Ukraine war and a possible fourth COVID-19 wave in China could mar the growth of big companies with exposure to global markets. Furthermore, since the shares of many of these companies still look overvalued, they could suffer a downtrend.
Because increasing efforts will likely be made to prioritize domestic production going forward, micro-cap stocks are likely to outperform their large-cap counterparts now because they have historically hedged inflationary pressure and delivered returns that are better than the broader market. Investors’ interest in micro-cap stocks is evident in the iShares Micro-Cap ETF’s (IWC) 4.4% returns over the past month, compared to the SPDR S&P 500 Trust ETF’s (SPY) 2.4% gains.
Therefore, budding micro-cap companies USA Truck, Inc. (USAK), Manning & Napier, Inc. (MN), ARC Document Solutions, Inc. (ARC), Lifeway Foods, Inc. (LWAY), and Core Molding Technologies, Inc. (CMT), which are currently trading at reasonable valuations, could be solid bets now.
USA Truck, Inc. (USAK)
With a $202.46 million market cap, USAK in Van Buren, Ark., operates as a truckload carrier internationally. The company operates in two segments–Trucking, which offers motor carrier services as a medium-haul common and contract carrier, and freight services. USAT offers freight brokerage, logistics, and intermodal rail services. And as of Dec. 31, 2021, the company operated a fleet of 2,157 tractors, including 641 independent contractor tractors and 6,548 trailers.
On Jan. 5, 2022, USAK signed a Letter of Intent (LOI) for an initial purchase of 10 Nikola Tre BEV trucks from Thompson Truck Centers, a member of the heavy-duty commercial battery-electric vehicle manufacturer and designer Nikola Corporation (NKLA) sales and service dealer network. The agreement also includes a purchase option for an additional 90 Nikola zero-emission trucks over the next two years. The partnership with NKLA and Thompson advances USAK’s ESG initiatives.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, USAK’s operating revenue increased 26.5% year-over-year to $200.85 million. The company’s adjusted operating income came in at $16.80 million, representing a 66.9% rise from the prior-year period. USAK’s adjusted net income was $12.41 million for the quarter, up 100.8% from the year-ago period. Its adjusted EPS increased 100% year-over-year to $1.38. As of Dec. 31, 2021, the company had $1.35 billion in cash and restricted cash.
Analysts expect the company’s EPS to hit $3.48 for its fiscal year 2022, ending Dec.31, 2022, representing a 21.7% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $787.95 million consensus revenue estimate for the same fiscal year indicates a 10.9% year-over-year improvement. The company’s EPS is expected to grow at a 27.6% rate per annum over the next five years.
Over the past three months, the stock has gained 25.6% in price and closed Friday’s trading session at $22.76. USAK’s trailing-12-month ROE, ROA, and ROTC are 25.3%, 6.4%, and 8.3%, respectively.
USAK’s 0.50x trailing-12-month EV/Sales is 74.1% lower than the 1.94x industry average. And in terms of trailing-12-month Price/Sales, USAK is currently trading at 0.28x, which is 81.7% lower than the 1.54x industry average.
USAK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum and a B grade for Growth, Value, and Sentiment. Click here to see the additional ratings for USAK’s Quality and Stability. USAK is ranked #2 of 22 stocks in the A-rated Trucking Freight industry.
Note that USAK is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.
Manning & Napier, Inc. (MN)
MN operates as an independent investment management firm based in Fairport, N.Y. Powered by multiple research engines, employing fundamental and quantitative approaches, the company offers a range of financial solutions and investment strategies to its clients, including wealth management services. Its mutual funds and collective investment trusts are primarily distributed through financial intermediaries, including brokers, financial advisors, retirement plan advisors, and platform relationships. It has a market capitalization of $175.19 million.
As of Feb. 28, 2022, MN had preliminary assets under management (AUM) of $20.8 billion, compared with $21.4 billion as of Jan. 31, 2022, and $22.5 billion as of Dec. 31, 2021.
For its fiscal 2021 fourth quarter ended Dec. 31, 2021, MN’s total revenue increased 12.8% year-over-year to $37.82 million. The company’s operating income came in at $9.24 million, indicating a 102.3% gain from the year-ago period. Its non-GAAP net income came in at $7.97 million, up 38.9% from the prior-year period. MN’s non-GAAP EPS increased 34.6% year-over-year to $0.35. As of Dec. 31, 2021, the company had $73.49 million in cash and cash equivalents.
MN stock has gained 23.6% in price over the past three months and ended Friday’s trading session at $9.16. MN’s trailing-12-month ROE, ROA, and ROTC are 32.2%, 13.5%, and 21.6%, respectively.
In terms of trailing-12-month EV/Sales, MN is currently trading at 0.64x, which is 77.6% lower than the 2.87x industry average. In terms of trailing-12-month Price/Sales, MN is currently trading at 1.12x, which is 65.2% lower than the 3.21x industry average.
MN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Quality, Growth, Momentum, Sentiment, and Value. Click here to see the additional ratings for MN’s Stability. MN is ranked #1 of 25 stocks in the B-rated Investment Brokerage industry.
ARC Document Solutions, Inc. (ARC)
With a $155.10 million market capitalization, ARC in Walnut Creek, Calif., is a reprographics company that designs, builds, and operates printing and technology solutions for various industries. The company also resells printing, imaging, and related equipment primarily to architectural, engineering, and construction firms and provides ancillary services. It serves IT and procurement departments, project architects, engineers, general contractors, facilities managers, retail, technology, educational, hospitality, and public utilities.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, ARC’s total net sales increased 7.6% year-over-year to $69.25 million. The company’s gross profit came in at $22.28 million, representing a 7.8% rise from the prior-year period. Its income from operations came in at $4.30 million, indicating an 84.9% year-over-year improvement. ARC’s adjusted net income came in at $2.72 million, up 168.3% from the prior-year period. Its adjusted EPS was $1.08, indicating a 200% rise from the year-ago period. The company had $55.93 million in cash and cash equivalents as of Dec. 31, 2021.
Analysts expect the stock’s EPS to hit $0.30 in its fiscal year 2022, ending Dec. 31, 2022, representing a 36.4% rise from the prior-year period. The $288.03 million consensus revenue estimate for the same fiscal year indicates a 5.8% year-over-year improvement. The company’s EPS is expected to grow at a rate of 10% per annum over the next five years.
Over the past three months, the stock has gained 9.1% in price to close Friday’s trading session at $3.59. ARC’s trailing-12-month ROE, ROA, and ROTC are 5.6%, 2.8%, and 3.3%, respectively.
The company has a 0.81x trailing-12-month EV/Sales, which is 58.6% lower than the 1.94x industry average. In terms of trailing-12-month Price/Sales, ARC is currently trading at 0.56x, which is 63.8% lower than the 1.54x industry average.
ARC’s POWR Ratings reflect its solid prospects. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Value, Sentiment, and Quality, and a B grade for Growth. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for ARC’s Stability and Momentum here. ARC is ranked #1 of 44 stocks in the B-rated Outsourcing - Business Services industry.
Lifeway Foods, Inc. (LWAY)
LWAY manufactures and sells probiotic, cultured, and functional dairy and non-dairy health food products. The Morton Grove, Ill., company’s primary product is kefir, a dairy beverage similar but distinct from yogurt, ranging in various flavors and package configurations. It also offers soft cheeses, cream, and other products. It has a $117.77 million market capitalization.
At the Natural Products Expo West 2022, held from March 8-12, LWAY featured its new, nationally distributed probiotic oat milk, Lifeway Organic Oat, which is available in six flavors; Lifeway MSHRM Oat, the company's new line of adaptogenic functional mushroom beverages; and samples from the recently acquired GlenOaks Farms brand. As the demand for great-tasting, plant-based beverages offering probiotic benefits rises, LWAY’s products should rise significantly.
For its fiscal year 2021 third quarter, ended Sept. 30, 2021, LWAY’s net sales increased 13.5% year-over-year to $29.55 million. The company had $10.02 million in cash and cash equivalents as of Sept. 30, 2021.
Over the past three months, the stock has gained 53.8% in price and ended Friday’s trading session at $7.63. LWAY’s trailing-12-month ROE, ROA, and ROTC are 7.7%, 5.9%, and 7.2%, respectively.
LWAY’s 1.02x trailing-12-month EV/Sales is 46.2% lower than the 1.89x industry average. And in terms of trailing-12-month Price/Sales, LWAY is currently trading at 1.05x, which is 26.3% lower than the 1.42x industry average.
LWAY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Growth, and a B grade for Value, Stability, Sentiment, and Quality. Click here to see the additional ratings for LWAY’s Momentum. LWAY is ranked #4 of 49 stocks in the B-rated Food Makers industry.
Core Molding Technologies, Inc. (CMT)
With a market capitalization of $97.56 million, CMT in Columbus, Ohio, engages in molding thermoplastic and thermoset structural products internationally. The company offers customers a range of manufacturing processes, including compression molding of SMC, resin transfer molding (RTM), liquid molding of dicyclopentadiene (DCPD), spray-up, and hand-lay-up, direct long-fiber thermoplastics (D-LFT), structural foam and structural web injection molding (SIM). It serves medium- and heavy-duty truck, marine, automotive, agriculture, construction, and other commercial products markets.
CMT’s total net sales for its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, increased 20.6% year-over-year to $73.17 million. The company’s net income came in at $441,000 for the quarter, compared to a $867,000 loss in the prior-year period. Its EPS came in at $0.05 versus a $0.10 loss per share in the prior-year period. As of Dec. 31, 2021, the company had $6.15 million in cash and cash equivalents.
CMT has gained 29.2% in price over the past three months and closed Friday’s trading session at $11.51. CMT’s trailing-12-month ROE, ROA, and ROTC are 4.8%, 3.9%, and 5.3%, respectively.
In terms of trailing-12-month EV/Sales, CMT is currently trading at 0.39x, which is 78.9% lower than the 1.86x industry average. And in terms of trailing-12-month Price/Sales, CMT is currently trading at 0.30x, which is 80.5% lower than the 1.55x industry average.
CMT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Value and a B grade for Sentiment and Quality. Click here to see the additional ratings for CMT (Stability and Momentum). CMT is ranked #1 of 42 stocks in the A-rated Industrial - Manufacturing industry.
Click here to check out our Industrial Sector Report for 2022
USAK shares were trading at $22.66 per share on Monday afternoon, down $0.10 (-0.44%). Year-to-date, USAK has gained 13.98%, versus a -6.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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