Goldman Sachs analysts highlighted top picks in the small-cap space, ahead of its annual US Emerging & SMID Cap Growth conference in New York on Thursday.
Goldman analysts based their suggestions on several themes, according to a Wednesday note to clients:
- Despite a strong number of beats in [third quarter], out-year EPS estimates have continued to fall with upward revisions for just 20% of [Russell 2000 stocks] since Oct. 1 vs. over 40% of estimates moving lower. We see scarcity value for those with 'beat-and-raise potential' in 2016 such as RKUS, CIEN and AMC.
- Stock picking remains key for small-caps as earnings season was a reminder of how much alpha potential there can be in the asset class. One-month dispersion picked up to close to a 5-year high in late October/early November. We highlight idiosyncratic ideas where our analysts see significant upside potential: BLUE, COLM, RKUS, TWOU, UNVR.
- We highlight names we expect strong topline growth that also deliver on cash flows including SEDG, MSCC, INCR, and PENN.
Additionally, Goldman analyst Salveen Richter initiated coverage on small and mid-cap biotech stocks. She expects "innovation, product catalysts and M&A to be key drivers," the note said. Richter's top picks are bluebird bio and Kite Pharma.
Here are the small-cap stocks that Goldman favors, along with ratings by TheStreet Ratings, TheStreet's proprietary ratings tool, for another perspective. And when you're done be sure to check out the 12 high-growth tech stocks to buy for 2016.
Note: TheStreet Ratings does not cover all of the stocks on this list.
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.RKUS data by YCharts
1. Ruckus Wireless Inc. (RKUS)
Goldman Price Target: $16
Industry: Technology/Communications Equipment
Market Cap: $982 million
Year-to-date Return: -7.7%
Ruckus Wireless, Inc. provides carrier-class Wi-Fi solutions to service providers and enterprises worldwide. It provides gateways, controllers, and access points with related software and services.
12-Month Revenue Growth: 14.34%
12-Month Net Income Growth: -19.86%
12-Month EPS Growth: -28.58%
TheStreet Said: TheStreet Ratings team rates RUCKUS WIRELESS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate RUCKUS WIRELESS INC (RKUS) 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 revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 9.1%. Since the same quarter one year prior, revenues rose by 16.4%. 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.
- RKUS 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 3.23, which clearly demonstrates the ability to cover short-term cash needs.
- RUCKUS WIRELESS INC's earnings per share declined by 50.0% 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, RUCKUS WIRELESS INC increased its bottom line by earning $0.09 versus $0.02 in the prior year. This year, the market expects an improvement in earnings ($0.43 versus $0.09).
- 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 Communications Equipment industry. The net income has significantly decreased by 52.6% when compared to the same quarter one year ago, falling from $3.55 million to $1.68 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Communications Equipment industry and the overall market on the basis of return on equity, RUCKUS WIRELESS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full analysis from the report here: RKUS