The benchmark equity indices ended the last trading session in the green, posting their second straight day of gains this week. Despite turbulent market conditions due to inflation and the Fed’s hawkish stance, fundamentally sound micro-cap stocks could provide some attractive investment opportunities. Here are some examples: we think the micro-cap stocks of RCM Technologies (RCMT), Century Casinos (CNTY), eGain Corp (EGAN), DLH Holdings (DLHC), and Consumer Portfolio Services (CPSS) might be solid investments this month . Let’s discuss.
The benchmark indices posted their second consecutive gain this week. The Dow added 0.8%, the S&P 500 gained close to 1%, and the Nasdaq Composite rose 0.9%. Investors largely shrugged off economic slowdown fears and are awaiting the Consumer Price Index report to be released on Friday. The stock market has been on a turbulent ride this year due in large measure to the Federal Reserve’s aggressive stance on inflation and to the Russia-Ukraine war. Despite the downturns, there still might be investment opportunities to be had in the market. In this regard, we think fundamentally sound small- and micro-cap stocks could be good investments now. A micro-cap stock is a small company with a market capitalization of between $50 million and $300 million.
Daniel Wolfe, President and Portfolio Manager of 180 Degree Capital Corp. (TURN), a publicly traded closed-end fund, stated, “Interestingly, using history as a guide, we see the current sell-off as an opportunity as it relates to the small/microcap market generally. cap market, which includes micro-cap companies, is the only major asset class to outpace inflation during every decade since the 1930s.”
The iShares Micro-Cap ETF (IWC) has gained 4.4% over the past month, outpacing the S&P 500’s marginal gain over the same period. Hence, the micro-cap stocks of fundamentally strong companies RCM Technologies, Inc. (RCMT), Century Casinos, Inc. (CNTY), eGain Corporation (EGAN), DLH Holdings Corp. (DLHC), and Consumer Portfolio Services, Inc. (CPSS) might be solid additions to one’s investment portfolio this month.
RCM Technologies, Inc. (RCMT)
RCMT operates as a business and technology solutions provider in multiple countries. The Pennsauken, NJ-based company, through its three broad segments of Engineering; Specialty HealthCare; and Life Sciences and Information Technology, serves the aerospace and defense, life sciences, healthcare, and financial services industry. It has a market capitalization of $272.73 million.
For its fiscal first quarter, ended April 2, RCMT’s revenue increased 84% year-over-year to $81.96 million. Its net income has risen 547.5% from the prior-year quarter to $6.52 million. And its net EPS has improved 675% from the same period in the prior year to $0.62.
The $0.30 consensus EPS estimate for its fiscal quarter ending Sept. 30, 2022, indicates a 25% year-over-year increase. And the $70.11 million consensus revenue estimate for the same quarter reflects a 54.2% improvement from the prior-year period. Furthermore, RCMT has an impressive surprise earnings history; it has topped consensus EPS estimates in three of the trailing four quarters.
The stock has gained 629.3% in price over the past year and 278% year-to-date to close yesterday’s trading session at $26.91.
RCMT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a 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.
RCMT has a Growth grade of A and a Value, Sentiment, and Quality grade of B. In the 18-stock Outsourcing – Staffing Services industry, it is ranked #4. The industry is rated A. Click here to see the additional POWR Ratings for RCMT (Momentum and Stability).
Century Casinos, Inc. (CNTY)
Colorado Springs, Colo.-based CNTY is a casino entertainment company that operates in the United States, Canada, and Poland. The company develops and operates gaming establishments and related entertainment facilities. It has a $265.94 million market capitalization.
On April 1, CNTY announced that it had completed its acquisition of 50% of the membership interests in Smooth Bourbon, LLC from Marnell Gaming, LLC, which owns the land and building underlying the Nugget Casino Resort. The company also entered a lease with Nugget Sparks, LLC, which operates the Nugget Casino Resort for an annual rent of $15 million. This might expand the company’s operations.
On February 25, CNTY announced that its Canadian subsidiaries, which operates as Century Downs Racetrack and Casino (CDR) and Century Mile Racetrack and Casino (CMR), had partnered with Betmakers’ Global Racing Network to distribute its racing content, which might benefit CTNY .
CNTY’s net operating revenue increased 42.4% year-over-year to $103.10 million in its fiscal first quarter, ended March 31. Its net earnings attributable to CNTY shareholders and EPS attributable to CNTY shareholders improved 115.4% and 120%, respectively, from the prior -year period to $0.22 million and $0.01.
Analysts expect CNTY’s EPS to increase 78% year-over-year to $1.05 for its fiscal year 2023. The Street expects its revenue for the same year to rise 19.4% from the prior year to $528.81 million.
CNTY’s stock has gained marginally in price over the past five days to close yesterday’s trading session at $8.92.
It is no surprise that CNTY has an overall A rating, which translates to Strong Buy in our POWR Rating system.
CNTY has an A grade for Value and a B grade for Quality. It is ranked #1 among 29 stocks in the Entertainment – Casinos/Gambling industry. Click here to see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for CNTY.
eGain Corporation (EGAN)
EGAN develops, licenses, and implements customer service infrastructure software solutions in several parts of the world. The Sunnyvale, Calif., company offers unified cloud software solutions, subscription services, and professional services. It has a market cap of $294.98 million.
On March 3, EGAN announced that it was selected by the Wisconsin Department of Workplace Development (DWD) to modernize citizen services. This reflects upon the company’s quick time to value and deep functionality.
For its fiscal third quarter, ended March 31, EGAN’s total revenue increased 21.1% year-over-year to $23.90 million. Its non-GAAP net income and non-GAAP EPS came in at $2.39 million and $0.07, respectively, up 46.9% and 40% from the same period in the prior year.
The Street’s $23.41 million revenue estimate for the quarter ending June 30, 2022,reflects a 15.6% rise from the prior-year quarter.
The stock has gained 3.5% in price over the past five days to close yesterday’s trading session at $9.27. It has gained 1.3% intraday.
This promising prospect is reflected in EGAN’s POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
EGAN has a Sentiment grade of A and a Value, Stability, and Quality grade of B. In the 156-stock Software – Application industry, it is ranked #6. Click here to see the additional POWR Ratings for Growth and Momentum for EGAN.
Click here to check out our Software Industry Report for 2022
DLH Holdings Corp. (DLHC)
DLHC offers services such as technology-enabled business process outsourcing, program management solutions, and public health analytics and research. The Atlanta, Ga.-based company serves the Defense Health Agency, Tele-medicine and Advanced Technology Research Center, and the Navy Bureau of Medicine and Surgery. It has a $220.75 million market cap.
On June 2, DLHC announced that it had been awarded a contract to provide statistical, mathematical, and computational support for the National Institute of Environmental Health Sciences (NIEHS), with a total value of approximately $13 million. In May, the company reported its receipt of an Indefinite Delivery/Indefinite Quantity (ID/IQ) multiple-award contract from the Department of Defense (DoD) to provide health-related research and development and support services. These contracts should prove to be beneficial for the company.
DLHC’s revenue increased 76.7% year-over-year to $108.70 million in its fiscal second quarter, ended March 31. Its net income rose 179.6% from the prior-year quarter to $7.18 million, while its net income per share stood at $0.50, up 163.2% from the same period the prior year.
Street $0.23 EPS estimate for the quarter ending Sept.30, 2022, reflects a 9.5% year-over-year increase. Also, the Street’s $67 million revenue estimate for the same quarter indicates a 2.8% rise from the prior-year period. In addition, DLHC has topped consensus EPS estimates in three out of the trailing quarters.
Over the past year, the stock has gained 33.7% in price and 16% over the past month to close yesterday’s trading session at $17.25.
DLHC has an overall A rating, which translates to Strong Buy in our POWR Rating system.
The stock has an A grade for Growth, Value, and Sentiment and a B grade for Quality. It is ranked #2 of the 86 stocks in the Industrial – Services industry. The industry is rated B. To see the additional POWR Ratings for Momentum and Stability for DLHC, click here.
Click here to check out our Industrial Sector Report for 2022
Consumer Portfolio Services, Inc. (CPSS)
CPSS in Irvine, Calif., is a specialty finance company that engages in the purchase and service of retail automobile contracts. The company provides indirect financing to customers of dealers with limited credit history and serves as an alternative source of financing for dealers. It has a market cap of $267.75 million.
On February 3, CPSS announced a two-year revolving credit agreement renewal with Ares Agent Services, LP Charles E. Bradley, Jr., President, and Chief Executive Officer, said, “With this renewal, we continue to maintain our strategy of having multiple $100 million warehouse lines with multi-year revolving commitments followed by amortization periods.”
For its fiscal first quarter, ended March 31, CPSS’ revenues increased 17.8% year-over-year to $74.37 million. Its net income and EPS stood at $21.12 million and $0.75, respectively, registering improvements of 308.9% and 257.1% from the prior-year quarter.
The $276.80 million consensus revenue estimate for its fiscal 2022 indicates a 3.4% year-over-year improvement.
CPSS’ shares have gained 155.7% in price over the past year and 7.3% year-to-date to close yesterday’s trading session at $12.71.
CPSS has an overall A rating, which equates to Strong Buy in our proprietary rating system. The stock has a Growth, Sentiment, and Quality grade of B. It is ranked #2 of 107 in the Financial Services (Enterprise) industry.
In addition to the POWR Rating grades we have stated above, one can see CPSS ratings for Value, Momentum, and Stability here.
RCMT shares fell $0.28 (-1.04%) in premarket trading Wednesday. Year-to-date, RCMT has gained 274.02%, versus a -12.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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