While the stock market is expected to remain volatile on concerns over the Federal Reserve’s plan to raise interest rates several times this year to control inflation, unexpected fourth-quarter GDP growth suggest steady economic growth this year.
Despite being more volatile than their larger counterparts, small-cap stocks have historically delivered better growth. They benefit in an expanding economy. And investors' interest in small-cap stocks is evident in the Invesco S&P SmallCap 600 Equal Weight ETF’s (EWSC) 10.9% returns over the past year, which has been a period of recovery for the U.S. economy.
Given the economy’s growth prospects, we think it could be wise to invest in fundamentally sound small-cap stocks ICF International, Inc. (ICFI), Vector Group Ltd. (VGR), Oxford Industries, Inc. (OXM), Scholastic Corporation (SCHL), and Golden Entertainment, Inc. (GDEN) now. These stocks are currently trading at discounts to their peers and hold immense upside potential.
ICF International, Inc. (ICFI)
ICFI in Fairfax, Va., provides management, marketing, technology, policy consulting, and implementation services to government and commercial clients internationally. The company serves energy, environment, infrastructure, health, education, social programs, safety and security, and consumer and financial markets. It has a market capitalization of $1.76 billion.
On Feb. 1, 2022, Con Edison of New York, a regulated utility that provides electric and gas services, selected ICFI for a re-compete contract worth $30 million to manage and expand the implementation of its residential energy efficiency portfolio. Under the agreement, ICF will expand its support coverage area to encompass customers in additional Con Edison Inc. subsidiaries and counties in New York State and New Jersey.
ICFI’s revenue for its fiscal 2021 third quarter, ended Sept. 30, 2021, increased 9.4% year-over-year to $394.06 million. The company’s operating income was $32.27 million, up 14.2% from the prior-year period. ICFI’s net income came in at $20.39 million, indicating a 14.1% rise from its year-ago period. Its non-GAAP EPS increased 20% year-over-year to $1.32. The company had $7.88 million in cash and cash equivalents as of Sept. 30, 2021.
ICFI’s levered free cash flow has grown at a 66.51% CAGR over the past three years. The $4.78 consensus EPS estimate for its fiscal year 2021, ended Dec. 31, 2021, represents a 14.6% rise from the prior-year period. It surpassed the consensus EPS estimates in each of the trailing four quarters. Analysts expect ICFI’s revenue to rise 4.2% year-over-year to $1.57 billion. Its EPS is expected to grow at a 10% rate per annum over the next five years. Over the past year, the stock has gained 22.4% in price to close yesterday’s trading session at $93.43.
ICFI’s 2.21x forward Price/Book is 19.6% lower than the 2.75x industry average. In terms of forward EV/Sales, ICFI is currently trading at 1.37x, which is 26.8% lower than the 1.86x industry average.
It is no surprise that ICFI has an overall A rating, which equates to Strong Buy in our POWR Ratings 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 Sentiment and a B grade for Growth, Value, and Stability. Click here to see the additional ratings for ICFI’s Quality and Momentum. ICFI is ranked #3 of 5 stocks in the A-rated Outsourcing - Management Services industry.
Vector Group Ltd. (VGR)
With a $1.72 billion market capitalization, Miami, Fla.-based VGR manufactures and sells cigarettes through its Liggett and Vector Tobacco subsidiaries. It conducts its real estate business through its New Valley LLC subsidiary, which seeks to acquire or invest in additional real estate properties or projects. It markets and sells its cigarettes to wholesalers and distributors of tobacco and convenience products and grocery, drug, and convenience store chains.
On Dec. 30, 2021, VGR completed the spin-off of Douglas Elliman Inc., a real estate agent and managers company, to create a standalone company that will trade on NYSE under the symbol ‘DOUG.’ The spin-off should enable VGR to operate and strengthen its tobacco business through its Liggett Group LLC and Vector Tobacco Inc. subsidiaries, and own interests in numerous properties and real estate projects through New Valley LLC.
For its fiscal 2021 third quarter, ended Sept. 30, 2021, VGR’s total revenues increased 19.1% year-over-year to $652.65 million. The company’s $110.06 million in adjusted operating income for the quarter represents a 14% rise from the year-ago period. While its adjusted net income increased 37.2% year-over-year to $52.57 million, its adjusted EPS increased 36% to $0.34. As of Oct. 30, 2021, the company had $605.05 million in cash and cash equivalents.
VGR’s levered free cash flow has increased at a 47.8% CAGR over the past three years. Analysts expect the company’s EPS to increase 94.5% year-over-year to $1.77 in its fiscal year 2021, ending Dec. 31, 2021. It surpassed the consensus EPS estimates in three of the trailing four quarters. The $2.53 billion consensus revenue estimate for the same fiscal year represents a 26.6% rise from the prior-year period. VGR’s EPS is expected to grow at a 7.4% rate per annum over the next five years. Over the past year, the stock has declined 4.1% in price to close yesterday’s trading session at $11.17.
In terms of forward EV/Sales, VGR is currently trading at 1.04x, which is 45.3% lower than the 1.90x industry average. And in terms of forward Price/Sales, VGR is currently trading at 0.67x, which is 53.8% lower than the 1.46x industry average.
VGR’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Quality, Growth, and Value. Click here to see the additional ratings for VGR’s Momentum, Sentiment, and Stability. Among the 11 stocks in the B-rated Tobacco industry, VGR is ranked #1.
Oxford Industries, Inc. (OXM)
OXM is an apparel company that designs, sources, markets, and distributes lifestyle and other brands worldwide. The Atlanta, Ga.-based concern distributes products through its retail and e-commerce sites, department stores, specialty stores, multi-branded e-commerce retailers, off-price retailers, and other retailers. It had a market capitalization of $1.42 billion.
For its fiscal 2021 third quarter ended Sept. 30, 2021, OXM’s net sales increased 41.5% year-over-year to $247.73 million. The company’s gross profit came in at $152.54 million, representing a 58.5% year-over-year improvement. Its adjusted operating income was $26.80 million, versus a $9.10 million loss in the prior-year period. Its adjusted net income came in at $20.10 million for the quarter, compared to a $7.30 million net loss in the year-ago period. And its adjusted EPS was $1.19, versus a $0.44 loss per share in the prior-year period. As of Oct. 30, 2021, the company had $37.98 million in cash and cash equivalents.
OXM’s levered free cash flow has grown at a 43.1% CAGR over the past three years. Analysts expect the company’s EPS to be $7.76 for its fiscal year 2022, ending Jan. 31, 2022, representing a 528.7% rise from the prior-year period. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $1.14 billion consensus revenue estimate for the same fiscal year indicates a 52% year-over-year improvement. OXM’s EPS is expected to grow at an 11% rate per annum over the next five years. Over the past year, the stock has gained 31% in price and ended yesterday’s trading session at $84.33.
OXM’s 7.02x forward EV/EBITDA is 26% lower than the 9.48x industry average. In terms of forward Price/Book, OXM is currently trading at 2.71x, which is 10.5% lower than the 3.03x industry average.
OXM’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 Quality and Growth and a B grade for Value. Click here to see the additional ratings for OXM (Stability, Sentiment, and Momentum). OXM is ranked #6 of 65 stocks in the A-rated Fashion & Luxury industry.
Scholastic Corporation (SCHL)
With a $1.41 billion market capitalization, New York City-based SCHL publishes and distributes children's books worldwide. The company operates in three segments–Children's Book Publishing and Distribution; Education; and International. It distributes its products and services directly to schools and libraries through retail stores and the internet.
SCHL’s revenues for its fiscal 2022 second quarter, ended Nov. 30, 2021, increased 29.1% year-over-year to $524.20 million. The company’s non-GAAP operating income came in at $84.30 million for the quarter, up 55.3% from the prior-year period. While its non-GAAP net income increased 75.1% year-over-year to $69 million, its non-GAAP EPS grew 67.8% to $1.93. The company had $300.70 million in cash and cash equivalents as of Nov. 30, 2021.
SCHL’s levered free cash flow has grown at a 30.8% CAGR over the past three years. For its fiscal year 2022, ending May 31, 2022, analysts expect SCHL’s revenue to improve 8.5% from the prior-year period to $1.41 billion. The company’s EPS is expected to grow at a 9.1% rate per annum over the next five years. Over the past year, the stock has gained 59.8% in price and closed yesterday’s trading session at $41.25.
SCHL’s 0.81x trailing-12-month EV/Sales is 66.8% lower than the 2.43x industry average. In terms of trailing-12-month Price/Cash Flow, SCHL is currently trading at 7.30x, which is 18.4% lower than the 8.94x industry average.
SCHL’s POWR Ratings reflect its solid prospects. It has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Growth, and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for SCHL’s Sentiment, Stability, and Momentum here. SCHL is ranked #2 of 24 stocks in the Outsourcing - Education Services industry.
Golden Entertainment, Inc. (GDEN)
Las Vegas-based GDEN participates in the development, finance, management, and ownership of casino and resort properties and provides gaming, dining, entertainment, and guest services. The company also installs and operates slot machines and amusement devices in restaurants, taverns, convenience, and grocery stores. It also operates wholly-owned branded taverns that target local patrons. As of March 11, 2021, it had approximately 16,000 slot machines. It has a $1.33 billion market capitalization.
On Oct. 4, 2021, GDEN agreed with Flite Golf & Entertainment, one of the leading technology and operational partners to golf venues and ranges, to bring Atomic Range, a new 92,000 square-foot golf entertainment destination to seven acres of GDEC-owned land adjacent to its STRAT Hotel, Casino & SkyPod in Las Vegas. The move should enable GDEC to offer its guests a new and unique golf entertainment experience and generate good revenues in the future.
GDEN’s total revenues rose 37.5% year-over-year to $282.42 million for its fiscal 2021 third quarter, ended Sept. 30, 2021. The company’s operating income came in at $45.22 million, indicating a 378.6% rise from the prior-year period. Its net income came in at $29.05 million for the quarter, compared to a $6.96 million net loss in the prior-year period. Its EPS was $0.91, versus a $0.25 loss per share in the year-ago period. GDEN had $219.30 million in cash and cash equivalents as of Sept. 30, 2021.
GDEN’s levered free cash flow has grown at a 45.1% CAGR over the past three years. Analysts expect the company’s EPS to increase 206.4% year-over-year to $5.18 in its fiscal year 2021, ended Dec. 31, 2021. It surpassed the consensus EPS estimates in three of the trailing four quarters. The $1.08 billion consensus revenue estimate for the same fiscal year represents a 55.4% rise from the prior-year period. GDEN’s EPS is expected to grow at a 15% rate per annum over the next five years. Over the past year, the stock has gained 164.8% in price to close yesterday’s trading session at $45.89.
In terms of forward EV/EBITDA, GDEN is currently trading at 8.06x, which is 14.9% lower than the 9.48x industry average. And in terms of forward Price/Cash Flow, GDEN is currently trading at 4.52x, which is 61.1% lower than the 11.60x industry average.
GDEN’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Growth, Sentiment, and Quality. Click here to see the additional ratings for GDEN’s Stability and Momentum. Among the 33 stocks in the Entertainment - Casinos/Gambling industry, GDEN is ranked #1.
ICFI shares were trading at $93.56 per share on Wednesday afternoon, up $0.13 (+0.14%). Year-to-date, ICFI has declined -8.77%, versus a -4.28% 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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