These 3 Micro-Caps Are On Watch For Explosive EPS Growth
Microcaps can be attractive for many reasons. One reason is that micro caps can experience explosive growth and turn into small-caps and mid-caps but not all micro caps are destined for such glory. Some microcaps, like the ones we have today, will most likely stay microcaps but that does not mean they aren't attractive Investments. These companies all have solid revenue and earnings leverage to drive shareholder value making them great diversifiers for your micro-cap portfolio
1. Pure Cycle Corporation For Water Infrastructure
Pure Cycle Corporation (NASDAQ:PCYO) is an interesting micro-cap stock operating in the Colorado region. The company has a unique business model in that it develops lands in order to capitalize on water rights, sell metered water use, and then resale used water to the energy and fracking industry. The company is expected to report results later this week and should deliver a solid report. Not only is business activity in the Denver area increasing due to economic reopening, but Colorado and Denver are top destinations for relocation. Trends in the housing market have been supporting sales growth, margin improvement, and earnings growth for the last four years, and these trends are not expected to slow.
Shares of Pure Cycle Corporation have been trending higher since late 2016 and look ready to move higher now. Price action is sitting on support above the 150-day moving average with the catalyst of earnings just ahead. If the trend is confirmed we see this stock moving up to retest resistance at the recent highs near $16 which is good for a gain of 16%. Longer-term, we see this stock breaking above the $16 level on revenue and earnings strength and moving as high as $24 over the next year or so.
2. Arts-Way Manufacturing Company A Surprise Winner
Arts-Way Manufacturing (NASDAQ:ARTW) is the surprise winner from the pandemic. The company wasn't completely immune to the troubles caused by the shutdowns but it bounced back quickly and on track to exceed its pre-COVID results this quarter. The company operates in three segments manufacturing farm equipment, specialty buildings for agricultural/scientific use, and tools with the agricultural segment accounting for much of the company’s strength over the past year. Based on the uptick in activity in the Modular Buildings segment reported last quarter, we are expecting to see this segment return to growth this quarter and boost results.
"We are pleased to report top-line growth in the first quarter due to the increased revenue in our Agricultural Products segment. With strong backlogs for the Agricultural Products and Tools segments, as well as increased quoting activity for Modular Buildings, we are optimistic about continued revenue growth for the remainder of the year,” said David King president and CEO of Art's Way Manufacturing.
Shares of Art’s Way have been moving higher since bottoming last year. The most recent price action looks bullish and suggests a move up to the $4 level is coming. If price action can get above $4 we see this stock moving up to the $5 and $5.50 levels fairly quickly.
3. Kewaunee Scientific Corporation Is In A Hot Market
Kewaunee Scientific Corporation (NASDAQ:KEQU) was also only lightly affected by the pandemic. The company has been able to not only sustain business but also returned to growth and recently got a boost from an industry report. A report of the scientific cabinet industry, a large portion of Kewaunee’s business, says this market is going to grow at a high single-digit CAGR for the next several years at least. In our view, this has the company set up to return to pre-pandemic revenue levels and exceed them this year.
Shares of Kewaunee Scientific Corporation began bottoming early in 2020. That bottom was confirmed late in the year and then later reconfirmed in 2021. The most recent price action has the stock moving sharply higher and breaking above resistance in what appears to be a full reversal of the previous downtrend. The risk now is resistance at the $15 level but we think that will be broken in the wake of the earnings report. A move above $15 would be bullish and could easily take the stock up to the $30 level.
