Seeking Ideas at the "Woodstock" of Small Caps, Part II

 | Dec 10, 2012 | 12:00 PM EST  | Comments
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In our unending search to bring subscribers the best investment ideas, I spent a day last week at what I call the Woodstock of Small Cap conferences, small-cap investor extraordinaire Chris Lahiji's LDMicro "Main Event" Conference. Following on Friday's post, here are a few more of the ideas from the conference that tickled my fancy, and are worth further research on your part. 

RealD (RLD) -- If you have been to a 3-D movie lately, you know RealD supplies the technology to make it "pop." With studios and theaters looking for every angle to get viewers out of the living room and into the theater, the 3D trend is likely to keep growing. RealD is riding this wave: Revenue advanced from $39 million in 2009 to $250 million this year, with strong performance in earnings before interest, taxes, depreciation and amortization as well. RealD is not cheap -- it sells at 10x EBITDA -- but sometimes visible growth is worth it. 

S&W Seed (SANW) -- As long as people need to eat, agriculture will simply never go out of style -- and S&W has a special breed of alfalfa seed that can thrive in poor conditions, such as warm climate and saline soils. The market is finding this name, with sales having grown from $5 million in 2009 to $15 million this year. Cash is the cash crop of this company, as it continues to pile up on the balance sheet. 

TIO Networks (TNC) -- TIO provides transaction-processing services in the form of bill-payment processing to large telecom, cable and utility companies. The company's 60,000 bill-payment "points of presence" -- mostly kiosks -- enable an easy alternative to mail for the many people who still like to pay "in person." The company's revenue grew from $21 million in 2009 to $42 million this year, with operating cash flow strong at $2 million. The firm has enterprise value of only $12 million, so this one seems dirt cheap for the growth you are getting. 

World Energy Solutions (XWES) -- This company operates exchanges for the trading of electricity, natural gas, and environment commodities (such as carbon). Exchanges are essentially transaction processors, which always seem to have good economics -- earnings are leveraged to volume growth, and costs fall as technology becomes ever cheaper. World Energy is achieving the critical mass in its markets that will enable rapid growth. Its top line jumped from $14 million in 2009 to $31 million this year, with operating cash flow of $3 million expected. A $52 million market capitalization leaves the stock trading at only 1.5x sales, a reasonable multiple relative to growth. 

Adcare Health Systems (ADK) -- How to play the aging-population theme? Look no further than the great state of Ohio, which houses a rapidly growing assisted-living company. Adcare runs a growing fleet of retirement communities and assisted-living facilities in the state. Sales grew from $27 million in 2009 to $212 million this year, and cash is growing despite the normal capital-expenditure and acquisition uses. Not surprisingly, debt is high in this real estate-driven business -- but with rates low and terms matched to the long lives of the assets, the balance sheet seems able to support future growth.

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