Top Five Small-Cap Stocks: Balchem, Natus

We have rated Pericom a buy since February 2007. The company reported that its earnings for the third quarter of fiscal 2008 surged 58% year over year, bolstered by strong demand. Revenue climbed 36% to $41.18 million in the same period. Net income for the quarter increased to $4.1 million, or 16 cents a share, from $2.6 million, or 10 cents a share, a year ago. The company expanded its Digital Video solutions by launching two new switches that allow next generation computing platforms using dual function graphics ports to be switched between either of the high speed protocols. Pericom also launched three new signal conditioning products and expanded its Timing portfolio.

Looking ahead, management expects revenue for the fourth quarter of fiscal 2008 to be in the range of $42 million to $43.2 million, with gross margin expected to be in the range of 37% to 38%. In addition, the company expects its operating expenses to be between $10.8 million and $11 million. However, weak demand for semiconductors, higher stock option expenses and the highly competitive market could restrict Pericom's future growth.

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 affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

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