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Small Companies With Fast-Growing Profits

Small-company stocks have been on a tear. The Russell 2000 small-stock index returned 33% for year ended June 30, 2004. But that doesn't mean you're too late to the game. Fledgling companies powered by potential, powerful earnings and strong balance sheets are still out there.

You just need to know what to look for to catch the stars while they're on the rise. A track record of rising profits and low price-to-earnings-growth ratios are a good start. You can find a batch of fast-growing young companies by screening for these additional criteria:

1. Market capitalization: More than $100 million but less than $2 billion
   
2. Projected 3-5 year earnings growth: More than or equal to 20%
   
3. This year's increase in earnings: More than or equal to 20%
   
4. Last closing price: More than $3
   
5. Price-earnings ratio (based on next year's earnings): Less than 35
   
6. PEG ratio: Less than or equal to 1.5
   
7. Debt-to-capital ratio: Less than or equal to 30%
   
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