Micro-cap companies trading over-the-counter tend to trade under the radar of most institutional investors and many individual investors. While many of these companies are riskier early stage ventures, there are several profitable and growing companies that mainstream investors may want to consider. In this article, we'll explore three such profitable and growing OTC companies.
AmbiCom Powers WiFi in Medical Devices
AmbiCom Holdings Inc. (OTCBB: ABHI) is a leading designer and developer of innovative wireless products for the medical and automotive verticals. During the 3-months ended October 31, 2013, the company reported its fifth consecutive quarter of net income with revenues of about $800,000 while management made significant operational progress.
Looking forward, the company's new SDIO cards build upon the success of its legacy CompactFlash cards by adding new functionality like enhanced wireless transfer rates and better battery life. Management's move into the retail market with its upcoming solar ionic toothbrushes and other product lines could unlock incremental value over time.
The company's stock trades with a price-earnings ratio of 6.1x which is significantly lower than the industry's 21.7x average and the S&P 500's 17.9x average price-earnings ratios, according to data from Morningstar. Similarly, the firm's price-sales ratio trades at just 1.0x compared to the industry's 1.7x and the S&P 500's 1.6x, suggesting the stock may be undervalued.
Profire Energy Ignites the Oil Industry
Profire Energy Inc. (OTCBB: PFIE) is a technology company which manufactures, installs and services burner management systems and other combustion technologies for the oil and gas industry. During the 3-months ended September 30, 2013, the company reported record revenues that increased 113% to $9.3 million and net income of about $2 million.
With the domestic oil and gas industry undergoing rapid expansion, particularly in the Bakken, Marcellus and Eagle Ford shales, the company is well positioned - both physically and financially - to take advantage of the industry's growth. The firm's debt-free balance sheet and 60% margins have paved the way towards unlocking significant long-term value.
The company's 42.6x price-earnings ratio comes at a premium to the industry's 21.6x ratio and the S&P 500's 17.9x ratio. While this makes the stock overvalued on the surface, management's ability to produce triple-digit growth rates may actually make it cheap on a price-earnings to growth ("PEG") basis, with a PEG ratio that's well below 1.0x.
SMTP Makes Marketing a Little Easier
SMTP Inc. (OTCBB: SMTP) is a global provider of email delivery services focused on enhancing deliverability for marketers. During the 3-months ended September 30, 2013, the company reported revenues that increased 7.8% to $1.47 million and net income that increased 1.8% to $320,000 or $0.02 per share, as well as two new hires to its management team.
The company is perhaps best known among OTC investors for its 6.2% dividend yield which is a bit unusual for smaller companies. In November, management announced that it would increase the dividend by 4.3% during the third quarter versus the second quarter, signaling that management is very focused on unlocking long-term shareholder value.
With a price-earnings ratio of 18.7x and a price-sales ratio of 4.1x, the stock trades at a discount to the industry's 41.0x price-earnings and 7.2x price-sales ratios. Management's profitability and dividend yield come as a bonus to this discount since many of its peers operate at a net loss and tend to attract more growth investors than value investors.
Many institutional and individual investors don't take the time to sort through OTC companies to find the hidden gems that are both profitable and growing. Given their smaller size, these companies offer investors greater upside potential than many blue chip stocks - after all, it's easier to double $10 million in revenue than $10 billion in revenue.
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