Read the 100 Best Small Companies in America

The initial list based on the universe of public corporations with less than $1 billion in revenue. These companies are among the best for their size because they have increased revenue over the period covered by our analysis. Their relatively small sizes and robust sales expansion rates also makes it likely many will continue to grow even further, if the record of public company expansion is any example.  Past growth does not mean all of these firms will prosper, but most on this list have been consistently profitable, which adds to the chances of future progress.

Small companies, our research shows, usually have one or two specialized divisions and are focused on one core market. For instance, Steve Madden, True Religion and rue 21 have all carved out a niche segment in the apparel and footwear market. Their lack of diversity could be a drawback because the companies rely completely on one set of products, but it can also mean that management can be laser focused on a single opportunity.

Another industry which is well represented on this list is niche healthcare. Once again, most of the firms in this sector which made the list are in only one business. Mesa Labs makes manufacturing quality control products for medical devices. It is a narrow market, and there is no guarantee that a large device manufacturer might not attack the same sector. Bio-Reference Laboratories provides testing services. Cantel Medical provides infection prevention and control devices. This infection prevention business appears to be a relatively small one, but the overall medical industry in the US is expanding at such a rapid rate and regulations are changing so quickly that some of these companies will prosper because of these changes. Given the state of American healthcare costs, not many people would be surprised to see healthcare firms on a list of fast growing companies

These corporations are also often willing to take calculated risks, in some case, as they strive to expand their bases. Retailers are a good example.  Steve Madden, one of our companies, was started in 1990 with $1,100. The company has consistently added lines of apparel since then to increase revenue

Another reason to create this list is that 24/7 Wall St. recognizes that smaller companies continue to be a backbone of job growth. Corporations that are highly successful are roadmaps for the sort of industries, managements, and products and services which have done well recently. As recent access to capital has improved compared with access during the recession, well targeted and well run smaller businesses stand a much better chance of doing extremely well because they can tap pools of funding.   Methodology: We ranked these companies largely based on their growth rates as well as on how they have performed financially in the recent past. The pace of these growth rates allowed us to make a final selection and rank the companies when growth was combined with eight other categories. The 100 companies on our list had a median 20% sales growth and 30% earnings per share growth over the last 12 months. Similarly, the median stock price return for the latest year for this group was 16%, which is double the return of the S&P 500 index over the same time.

While stock market performance is one of our ranking criteria, we did not remove companies for poor performance because smaller companies tend to have greater price swings than the overall market. We should point out that this is not an investment list for value seekers. Maintaining these lofty growth rates is not an easy task.

S&P Capital IQ  provided us with corporate information, financial data and rankings based on a series of metrics. We started with a universe of 1,200 publicly traded, small companies, which we defined as having between $5 million and $1 billion in revenue over the last 12 months. To narrow this group down, we required that sales growth, earnings per share growth and return on equity to be greater than zero for both the latest 12 months and over the companies’ last five fiscal years. We also excluded companies whose stock price is lower than $5.This brought the size of the list to 164

The criteria we used to allow us to winnow the list to  100 companies  based on a few items which included stock price. We then assigned a rank based on all of the above growth metrics and stock price returns over one and five years. For companies whose shares were not traded for five years, we used annualized figures from their first trade date. From these category rankings, each company was given an overall score that was used to produce the list.

Brian Zajac

The financial data below is from the latest available reporting period and price change is as of March 21, 2012.

After the first half-hour of trading, Infinity Pharmaceuticals is down more than -31% at $6.81. Volume is nearly 4x the daily average of about 64,000 shares traded. The drug maker has cancelled further trials of a pancreatic cancer drug that does not perform better than placebo.

Riverbed is down nearly -21% at $23.66. Volume is already nearly 3x the daily average of about 3.1 million shares traded. The networking technology company warned this morning that first-quarter sales growth would not meet previous expectations.

Solutia is up more than 41% at $27.56 after posting a new 52-week high of $57.85 earlier. Volume is already 12x the daily average of about 1.3 million shares traded. The specialty chemicals company has agreed to be acquired by Eastman Chemical Co. (NYSE: EMN) for $3.4 billion in cash and stock.

Informatica is up nearly 15% at $44.00. Volume has already exceeded the daily average of 1.7 million shares traded. The business software and services company has raised its outlook for the first quarter.

Ford is down more than -4% at $12.18. Volume is already about 80% of the daily average of about 54 million shares traded. The automaker missed earnings estimates this morning.

Paul Ausick

The board of Air France will meet to fire the carrier’s CEO (WSJ)

Dell (NASDAQ: DELL) may target Citrix (NASDAQ: CTSX) and Informatica (NASDAQ: INFA) (Bloomberg)

Douglas A. McIntyre

The top components are as follows: NetFlix Inc. (NASDAQ: NFLX) 4.46%; RightNow Technologies Inc. (NASDAQ: RNOW) 4.15%; Open Text Corp. (NASDAQ: OTEX) 4.13%; Rackspace Hosting Inc. (NYSE: RAX) 4.11%; TIBCO Software Inc. (NASDAQ: TIBX) 3.91%; Informatica Corp. (NASDAQ: INFA) 3.89%; Acme Packet Inc. (NASDAQ: APKT) 3.87%; Teradata Corp. (NYSE: TDC) 3.80%; Aruba Networks Inc. (NASDAQ: ARUN) 3.78%; and Equinix Inc. (NASDAQ: EQIX) 3.70%.  The classification stresses software at 32.53%, Internet software & services as 22.61%, communications equipment at 16.75%, and computer & peripherals at 11.15%.

The index tracks the ISE Cloud Computing™ Index and is said to be modified in equal-dollar weightings and is meant to track the cumulative performance of companies “actively involved in the cloud computing industry.”  Minimum participation requires being engaged in a business activity supporting or utilizing the cloud computing space, as well as a share listing on an index-eligible global stock exchange, and finally a minimum market capitalization rate of $100 million.

The three segments in the index are the following:

• pure-play cloud computing companies: direct service providers for the cloud or companies that deliver goods and services that utilize cloud computing technology;
• non-pure-play cloud computing companies: companies that focus outside the cloud computing space, but those which provide goods and services in support of the cloud computing space;
• Technology Conglomerate Cloud Computing Companies: These are large broad-based companies that indirectly utilize or support the use of cloud computing technology.

The overall weight by segment is 10% allocated to technology conglomerate companies.  The rest is stated as, “The index weight that is allocated to non pure play companies is calculated by dividing the non pure play companies’ market capitalization by the sum of the pure play, non pure play and technology conglomerate market capitalizations. The remainder of the index weight is allocated to pure play companies.”  Stocks are equally weighted within each of the three classifications and the index is reconstituted semi-annually and rebalanced quarterly.

After looking at the fact sheet, here are more details.  The minimum constituent market cap is $863 million, the median market cap is $9.65 billion, and the highest market cap is $321 billion.  The average P/E ratio is 33.37, the average price/book ratio is 5.10, the average price-to-cash flow ratio is 17.75, and the average Price/sales ratio is 4.20.

It is up to you as to decide whether or not you are a believer in an ETF with modified weightings such as this.  When we hear “There is an ETF for that!” the question that always comes to mind is “Should there be?”

JON C. OGG

Jon C. Ogg
September 4, 2007

BUSINESS INTELLIGENCE: Cognos (COGN) started as Neutral, $1.70 2007 EPS target. Informatica (INFA) started as Neutral, $0.52 2007 EPS target. Business Objects (BOBJ) coverage transfer, also started as Neutral. Goldman Sachs also notes that it would look for a pullback in the names for a more attractive entry point.

DIGITAL RIGHTS: Macrovision (MVSN) started as Neutral and $32 target, $0.76 2007 EPS target.

MIGRATION SOFTWARE: Digital River (DRIV) started as Buy, $1.59 2007 EPS target; issues $54 target; attractive valuation atfer recent pullback.

Jon C. Ogg
July 11, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.