CPL, Qualceram, Horizon and Vislink are the best investment bets among the ISEQ's smallest stocks, according to a new analysis from Goodbody Stockbrokers.
The new study into the stock exchange's 18 companies with a market capitalisation of less than €100 million finds that the tiniest stocks have been stirring investor interest lately.
The collective valuations of Irish "microcaps" have fallen by 49.5 per cent over the past five years but, since the start of 2003, they have been posting a strong recovery, with overall growth of 105 per cent over 21 months, compared to 39 per cent for the main ISEQ.
Goodbody says this recovery has been driven by improving market expectations rather than by any significant upswing in fundamentals for the market minnows. Stronger balance sheets and a better outlook for returns have been key to performance, according to the broker.
But even though valuations for the microcaps have been climbing, Goodbody says a number remain cheap.
"Strong balance sheets mean a number of the microcaps are in a better position to exploit growth opportunities in the future," Goodbody says in its From Little Acorns research report.
The broker has measured the 18 smallest stocks on criteria such as return on capital, the price/earnings (p/e) ratio and debt ratios.
Horizon, Qualceram and Vislink appear undervalued, according to the study's conclusions.
CPL is a touch overvalued on the criteria but Goodbody sees it as a growth opportunity based on its cyclical exposure to the Irish economy.
The recruitment firm, which is headed by Ms Anne Heraty, has seen its share price more than double since the start of the year, but Goodbody believes the current valuation of around €1.35 could represent a buying opportunity.
The stock is trading on a p/e ratio of 14.5, which, in Goodbody's view, represents a discount to its UK peers.
Horizon, which is currently trading at levels around 90 cents, could merit a price of €1.25 based on the firm's recent performance, Goodbody says.
The broker has a price target of €2.50 on Qualceram, which is currently trading around €1.95.
The firm's recent restructuring should see it enter a period of steadier growth, according to the analysis. A reintroduction of dividend payments earlier this year is also noted positively.
Goodbody chooses technology supply firm Vislink because it is expecting 2005 results to show a "significant improvement" in performance.
The company, which operates in the UK, recently restructured and Goodbody believes it could rise from its current price of 22p sterling to 28p.
