NEW YORK (TheStreet) -- Valuations for stocks in the Russell 2000 Index are among the most expensive they've been in 20 years and that makes Goldman Sachs (GS - Get Report) analysts nervous.

"While the recent correction (10% since the peak in June) has driven the (Russell 2000) P/E 3x lower, the measure has only returned to levels seen just a year ago and is still in the 82nd percentile vs. the last 20 years," Goldman Sachs analysts wrote in a note to clients on Tuesday. "Importantly, the aggregate metric continues to be biased upward by negative earners, which make up a larger part of the index than at any time outside of a recession. This continues to make us nervous about the direction of the overall index, and particularly for companies that are unlikely to generate positive earnings in any of the next three years."

That said, price-to-earnings multiples doesn't often capture "superior growth expectations, which we view as especially relevant for small-cap stocks," the note said. "The recent pullback has created a more interesting entry point for a number of stocks, and particularly for many of those where our analysts expect strong growth over the next few years."

Investors like stocks with consistent and sustainable growth "particularly as expectations have been moving lower for many stocks," the analysts write. "Specifically, we look for compounders -- those that our analysts expect will generate double-digit organic top-line growth each of the next three years, and as a result of operating leverage, will drive a doubling in operating profit (EBIT) by 2017."

The list denotes small-cap stocks that can double their operating earnings over the three year period from 2014-to-2017, while also posting double-digit sales growth. Goldman defines small-caps as stocks with market capitalization under $4 billion. The stocks are paired with ratings from TheStreet Ratings for added perspective.

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

 

APOG Chart APOG data by YCharts

1. Apogee Enterprises Inc. (APOG - Get Report)
Industry: Industrials/Building Products
Market Cap: $1.5 billion
Year-to-date return: 14.9%

Expected 3-Year EBIT (earnings before interest and taxes) Growth: 150%
3-Year Compounded Annual Sales Growth Rate: 11%

Goldman Sachs Rating/Price Target: Buy/$63
Upside to Goldman Sachs' Price Target: 26%

TheStreet Said: TheStreet Ratings team rates APOGEE ENTERPRISES INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate APOGEE ENTERPRISES INC (APOG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, reasonable valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • APOG's revenue growth has slightly outpaced the industry average of 1.3%. Since the same quarter one year prior, revenues slightly increased by 3.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • APOG's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • Compared to its closing price of one year ago, APOG's share price has jumped by 28.09%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, APOG should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Net operating cash flow has significantly increased by 167.19% to $41.21 million when compared to the same quarter last year. In addition, APOGEE ENTERPRISES INC has also vastly surpassed the industry average cash flow growth rate of 0.42%.
  • You can view the full analysis from the report here: APOG

 

 

BWLD Chart BWLD data by YCharts

2. Buffalo Wild Wings Inc. (BWLD)
Industry: Consumer Goods & Services/Restaurants
Market Cap: $3.7 billion
Year-to-date return: 6.6%

Expected 3-Year EBIT Growth: 102%
3-Year Compounded Annual Sales Growth Rate: 20%

Goldman Sachs Rating/Price Target: Buy/$220
Upside to Goldman Sachs' Price Target: 12%

TheStreet Said: TheStreet Ratings team rates BUFFALO WILD WINGS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

We rate BUFFALO WILD WINGS INC (BWLD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 16.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has slightly increased to $53.51 million or 4.52% when compared to the same quarter last year. In addition, BUFFALO WILD WINGS INC has also modestly surpassed the industry average cash flow growth rate of -4.80%.
  • Compared to its closing price of one year ago, BWLD's share price has jumped by 54.95%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • BUFFALO WILD WINGS INC's earnings per share declined by 10.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BUFFALO WILD WINGS INC increased its bottom line by earning $4.95 versus $3.80 in the prior year. This year, the market expects an improvement in earnings ($5.59 versus $4.95).
  • BWLD has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.78 is somewhat weak and could be cause for future problems.
  • You can view the full analysis from the report here: BWLD

 

CRTO Chart CRTO data by YCharts

3. Criteo SA (CRTO - Get Report)
Industry: Technology/Internet Software & Services
Market Cap: $2.5 billion
Year-to-date return: Flat

Expected 3-Year EBIT Growth: 278%
3-Year Compounded Annual Sales Growth Rate: 33%

Goldman Sachs Rating/Price Target: Buy/$59
Upside to Goldman Sachs' Price Target: 44%

TheStreet Said: TheStreet Ratings team rates CRITEO SA as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

We rate CRITEO SA (CRTO) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 6.8%. Since the same quarter one year prior, revenues rose by 39.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although CRTO's debt-to-equity ratio of 0.03 is very low, it is currently higher than that of the industry average. To add to this, CRTO has a quick ratio of 1.78, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Powered by its strong earnings growth of 50.00% and other important driving factors, this stock has surged by 25.61% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Internet Software & Services industry and the overall market, CRITEO SA's return on equity is below that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $13.83 million or 8.93% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: CRTO

 

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4. GrubHub Inc. (GRUB - Get Report)
Industry: Technology/Internet Software & Services
Market Cap: $2.6 billion
Year-to-date return: -18%

Expected 3-Year EBIT Growth: 247%
3-Year Compounded Annual Sales Growth Rate: 34%

Goldman Sachs Rating/Price Target: Buy/$39
Upside to Goldman Sachs' Price Target: 29%

TheStreet Said: TheStreet Ratings team rates GRUBHUB INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

We rate GRUBHUB INC (GRUB) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GRUB has underperformed the S&P 500 Index, declining 19.27% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • Net operating cash flow has significantly decreased to $0.12 million or 95.01% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The gross profit margin for GRUBHUB INC is currently very high, coming in at 72.03%. Regardless of GRUB's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, GRUB's net profit margin of 10.63% is significantly lower than the industry average.
  • When compared to other companies in the Internet Software & Services industry and the overall market, GRUBHUB INC's return on equity is below that of both the industry average and the S&P 500.
  • GRUB has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.11, which clearly demonstrates the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: GRUB

 

INOV Chart INOV data by YCharts

5. Inovalon Holdings (INOV - Get Report)
Industry: Technology/Information Services
Market Cap: $3.2 billion
Year-to-date return: -17.6%

Expected 3-Year EBIT Growth: 229%
3-Year Compounded Annual Sales Growth Rate: 21%

Goldman Sachs Rating/Price Target: Buy/$31
Upside to Goldman Sachs' Price Target: 39%

TheStreet Said: no rating available

 

PCRX Chart PCRX data by YCharts

6. Pacira Pharmaceuticals Inc. (PCRX - Get Report)
Industry: Health Care/Pharmaceuticals
Market Cap: $1.5 billion
Year-to-date return: -55.3%

Expected 3-Year EBIT Growth: 760%
3-Year Compounded Annual Sales Growth Rate: 32%

Goldman Sachs Rating/Price Target: Buy/$90
Upside to Goldman Sachs' Price Target: 113%

TheStreet Said: TheStreet Ratings team rates PACIRA PHARMACEUTICALS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate PACIRA PHARMACEUTICALS INC (PCRX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 7.1%. Since the same quarter one year prior, revenues rose by 25.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.53, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.22, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for PACIRA PHARMACEUTICALS INC is currently very high, coming in at 79.80%. It has increased significantly from the same period last year. Despite the strong results of the gross profit margin, PCRX's net profit margin of 0.01% significantly trails the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, PACIRA PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • PCRX's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 60.04%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
  • You can view the full analysis from the report here: PCRX

 

RH Chart RH data by YCharts

7. Restoration Hardware Holdings (RH - Get Report)
Industry: Consumer Goods & Services/Home furnishing Retail
Market Cap: $3.9 billion
Year-to-date return: 1.7%

Expected 3-Year EBIT Growth: 104%
3-Year Compounded Annual Sales Growth Rate: 18%

Goldman Sachs Rating/Price Target: Buy/$111
Upside to Goldman Sachs' Price Target: 16%

TheStreet Said: TheStreet Ratings team rates RESTORATION HARDWARE HLDNGS as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate RESTORATION HARDWARE HLDNGS (RH) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • RH's revenue growth has slightly outpaced the industry average of 9.9%. Since the same quarter one year prior, revenues rose by 16.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.90, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.12, which illustrates the ability to avoid short-term cash problems.
  • RESTORATION HARDWARE HLDNGS has improved earnings per share by 7.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, RESTORATION HARDWARE HLDNGS increased its bottom line by earning $2.19 versus $0.42 in the prior year. This year, the market expects an improvement in earnings ($3.12 versus $2.19).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 9.8% when compared to the same quarter one year prior, going from $27.25 million to $29.94 million.
  • Net operating cash flow has slightly increased to $28.00 million or 1.83% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -10.52%.
  • You can view the full analysis from the report here: RH

 

ZLTQ Chart ZLTQ data by YCharts

8. Zeltiq Aesthetics Inc. (ZLTQ)
Industry: Health Care/Health Care Equipment
Market Cap: $1.2 billion
Year-to-date return: 14.6%

Expected 3-Year EBIT Growth: 1838%
3-Year Compounded Annual Sales Growth Rate: 30%

Goldman Sachs Rating/Price Target: Buy/$43
Upside to Goldman Sachs' Price Target: 36%

TheStreet Said: TheStreet Ratings team rates ZELTIQ AESTHETICS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate ZELTIQ AESTHETICS INC (ZLTQ) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and premium valuation.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ZLTQ's revenue growth has slightly outpaced the industry average of 35.6%. Since the same quarter one year prior, revenues rose by 36.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • ZLTQ's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, ZLTQ has a quick ratio of 1.83, which demonstrates the ability of the company to cover short-term liquidity needs.
  • ZELTIQ AESTHETICS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ZELTIQ AESTHETICS INC turned its bottom line around by earning $0.02 versus -$0.54 in the prior year. This year, the market expects an improvement in earnings ($0.06 versus $0.02).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Health Care Equipment & Supplies industry. The net income has significantly decreased by 57.5% when compared to the same quarter one year ago, falling from $2.77 million to $1.18 million.
  • You can view the full analysis from the report here: ZLTQ