If under-the-radar small-cap stocks are your jam, I’ve got three selections from the S&P SmallCap 600 that might be right up your alley. The small-cap index is down 20.3% year to date. That’s 460 basis points better than the S&P 500 and 130 basis points worse than the S&P Mid Cap 400. Overall, it’s 240 basis points better than the S&P Composite 1500, which combines all three indexes.
The traditional definition of small-cap stocks is those companies with a market cap between $300 million and $2 billion. However, S&P Dow Jones Indices defines small caps as those stocks with market caps between $850 million and $3.6 billion. That’s the one I’m going to use.
The stocks I’ve selected belong to the S&P Small Cap 600, with a market cap between 1x and 5x their latest 12-month revenue and a share price between 10x and 20x their latest 12-month earnings per share.
All three under-the-radar small-cap stocks on today’s list have the potential to double by the end of 2023 or 2024 at the latest. However, in this challenging market, it’s important to remind readers that discretion is the better part of valor. Govern yourself accordingly.
Oxford Industries (OXM)
For those unfamiliar, Oxford Industries (NYSE:OXM) is a collection of apparel brands that includes Tommy Bahama, Lilly Pulitzer, Southern Tide, The Beaufort Bonnet Company, Duck Head, and Johnny Was, which the company acquired on Sept. 19 for $270 million. Johnny Was is a California-based designer of women’s bohemian chic apparel founded in 1987 by Eli Levite. It got its name from a 1976 Bob Marley song.
Over the past 19 years, Oxford has grown from a company with $765 million in annual revenue, 21% gross margins, and 5% operating margins in 2003 to one with annual sales of $1.26 billion, 62% gross margins, and 17% operating margins. Between 2003 and July 2022, it delivered an annualized total shareholder return of 13%.
The Johnny Was business is profitable and growing, with 70% gross margins and 17% operating margins. In the 12 months ended July 31, it generated $202 million in revenue split between e-commerce (41%), retail (34%) and wholesale (25%). The company’s average retail store generates more than $700 in sales per square foot with an average store size of 1,600 square feet. The new store payback is less than 24 months.
Analysts are predicting Oxford Industries will earn $10.46 per share this year, up 31%, on a 21.8% increase in revenue to $1.39 billion. OXM stock trades at 9.1x earnings and 1.2x sales.
Preferred Bank (PFBC)
If you live on the West Coast and you own a business, there’s a good chance you’ve heard of Preferred Bank (NASDAQ:PFBC). It provides commercial real estate loans, business loans, treasury management and consumer banking services. Currently, Preferred Bank has $6.2 billion in total assets.
BankDirector.com’s RankingBanking 2022 of the top 25 banks in America rated Preferred Bank 18th. That’s something to toot your horn about if you work there or own its stock. If you don’t own PFBC stock, here are a couple of reasons you might want to consider it.
First, it’s friendly to immigrants. Originally founded as a Chinese-American bank, Preferred continues to benefit from immigration from Asia despite becoming a more diversified, mainstream bank. America won’t continue to grow without immigration.
Second, the bank finished the second quarter with total loans of $4.9 billion, total deposits of $5.4 billion, and total earning assets of $6 billion. These assets generated net income of $28.1 million in Q2, 30.7% higher than a year ago. Its return on average assets in the second quarter was 1.84%, the highest in the past five quarters.
PFPC stock currently trades at 1.6x book value, less than its five-year average of 1.86x. It has a healthy dividend yield of 2.4%.
Dynavax Technologies (DVAX)
Dynavax Technologies (NASDAQ:DVAX) is down more than 22% year to date. It’s also lost nearly 50% of its value from its 52-week high of $21.39, made in November 2021. The drop in its market cap is hardly justified.
Dynavax develops and commercializes vaccines to protect against infectious diseases. It currently has two commercial products: HEPLISAV-B and the CpG 1018 adjuvant. The HEPLISAV-B vaccine protects adults 18 and over from contracting Hepatitis B. According to Dynavax’s website, when CpG 1018 is added to HEPLISAV-B, it “increases antibody concentrations, stimulates helper (CD4+) and cytotoxic (CD8+) T cell populations and generates robust T and B cell memory responses.”
I’m not going to pretend that I understand everything about that sentence. What I do know is that in the company’s Q2 results, HEPLISAV-B generated $32.7 million in revenue, 139% higher than a year earlier. Even more impressive, CpG 1018 generated net product revenue of $222.6 million in the second quarter, 471% higher than in Q2 2021. As a result, Dynavax is on track for its second year of profitability.
For the full year, management expects CpG 1018 adjuvant COVID-19 supply revenue of at least $550 million and gross profits of $330 million. Based on a 24% operating expense margin for the first six months of 2022 [$211.5 million less cost of sales product ($123.3 million) = $88.2 million], it could make as much as $242 million pre-tax in 2022 [$330 million less $88.2 million].
That’s a current valuation of 5.7x its estimated 2022 pre-tax earnings. Based on an effective tax rate of 20%, it’s trading at 7.1x after-tax earnings. I’ll take that.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.