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Top Five Small-Cap Stocks

Pericom Semiconductor (PSEM - Get Report), which makes integrated circuits and frequency-control products, has been rated a buy since February on the basis of growth in the company's revenue, net income and operating cash flow over the last quarter and fiscal year.

Also, Pericom has a healthy cash balance, an improved return on equity and minimal long-term debt. Fiscal-year first-quarter net profit surged 139% over the year-earlier period to $3.9 million, or 15 cents a share, bolstered by strong demand for its products. Sales climbed 24.5% to $38.5 million. Operating expenses edged up 1.9% to $9.92 million from $9.74 million as a result of higher selling, general and administrative expenses and stock-based compensation costs. Finally, higher interest and other income, which advanced to $1.37 million, also helped the net income increase.

During the quarter, Pericom expanded its digital video product portfolio by introducing a dual mode DisplayPort to DVI/HDMI Bridge. The company also launched two new HDMI switches under the same segment.

To meet its target for the share-repurchase program, Pericom repurchased 454,000 shares of its stock during the quarter at an average price of $10.93 for a total of $5 million. On the downside, stiff competition and a weaker gross margin could negatively affect earnings.

Neogen (NEOG - Get Report), which makes test kits for food and animal safety, has been rated a buy since September 2005. The company recently reported that fiscal-year second-quarter revenue increased 23% over a year ago to $27.2 million. EPS increased 34% to 22 cents a share. Neogen has demonstrated a pattern of EPS growth over the past two years, and this trend is expected to continue.

Net income for the quarter totaled $3.25 million, up from $2.43 million a year ago. The company has no debt to speak of, and it maintains a quick ratio of 2.64, which clearly demonstrates the ability to cover short-term cash needs.

Investors have apparently begun to recognize these positive factors, which has helped drive up the company's shares sharply over the past year. Although almost any stock can fall in a broad market decline, Neogen should continue to move higher. And though no company is perfect, currently TheStreet.com Ratings does not see any significant weaknesses that are likely to detract from the generally positive outlook.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could impact the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe a rating alone cannot tell the whole story, and should be part of an investor's overall research.

This article was written by a staff member of TheStreet.com Ratings.
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NEOG $46.88 0.93%
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FB $79.25 -1.10%

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