Jonathan Yates, Benzinga Staff Writer
For investors, the small cap world has many intriguing publicly traded companies. One happens to be Collector's Universe (CLCT), which, "provides third-party authentication, grading, and related services for rare and high-value collectibles consisting of coins, trading cards, sports memorabilia, and autographs." But investors do not buy stocks to be intrigued, rather, to be enriched.
Here are three reasons that should happen from Collector's Universe over the long term.
1. The company has a dominant market position.
That is shown by its double-digit profit margin (12.90 percent) and compelling return-on-equity (32.50 percent). According to his biographer Carol Loomis, legendary investor Warren Buffett places a strong emphasis on a return-on-equity of over 20 percent. The other margins are robust, too.
2. There is a bullish trend for earnings-per-share growth.
In 2014, earnings-per-share growth is down. But the analyst community projects it hitting 20 percent for the next five years. Sales growth is bullish, too. That, combined with a clean balance sheet that has no debt, should all contribute to strong earnings for the future.
3. The dividend income component is strong.
At present, it is 6.59 percent. That is too high as the payout ratio is over 100 percent, which is not good. Cutting the dividend in half would still result in a yield more than twice that of just under two percent for the average member of the S&P's 500 Index.
In early February, Collector's Universe reported record operating results for the second quarter. The stock has almost doubled for the past year. But it is down for the last week of market action. There is a high short float, too, of 9.95 percent ( a short float of 5 percent is considered to be troubling for a company). Insiders have also been selling.
As a result, this is a stock for investors to buy on the decline as its increasing earnings, strong profit margin and clean balance sheet make should make it a rewarding hold for the long term, especially with its solid dividend yield.