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Top Five Small-Cap Stocks: Stepan

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.

CAM Commerce (CADA) designs, markets, installs and services a variety of software, hardware and other technical systems for retailers. The company offers retailing systems consisting of software, hardware, installation, training, technical support services and Web hosting services to both traditional and Web retailers. CAM Commerce also offers comprehensive payment processing solutions and services that integrate with its retailing systems and those of other suppliers.

Our buy rating, in place since February 2006, is based on positive investment measures such as the company's strong revenue growth, solid financial position and stock performance, and its growth in net income. Revenue rose 23% year over year for the second quarter of fiscal 2008, and this growth appears to have helped boost earnings per share to 32 cents from 20 cents. CAM Commerce has no debt to speak of, giving it a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Net income increased 60% year over year to $1.37 million. The company declared a quarterly cash dividend of 31 cents a share to be paid on July 14, 2008, continuing its "earnings based" dividend plan that aims to pay out 75% or more of net profit each quarter.

Powered by its strong earnings growth of 60% during the second quarter, the price of this stock has risen 31% over the past year. We believe CAM Commerce's stock should continue to benefit from this trend and move even higher. Bear in mind, however, that even the most promising stocks are subject to broad market declines.

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.

This article was written by a staff member of TheStreet.com Ratings.
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