If you're looking for a list of the hottest sensations of the moment — you've come to the wrong place. Our list of the 200 Best Small Companies doesn't do flashes in the pan. It does, however, feature solid and consistent hitters that have performed well when measured over the last 12 months and the past five years, and are poised for another growth spurt.
Look, for example, at the 16 oil and gas companies this year. Eight of them have rigs in the Gulf of Mexico and may encounter a whack to operations in the third and fourth quarters. But as a group they should continue to show healthy balance sheets and, thanks to high energy prices, strong future cash flow.
With consumer spending holding reasonably well, retail and apparel are still strong categories, represented by 14 companies. But not just any entries that, say, expand via new units. We look for ones with sustained growth, like Hibbett Sporting Goods (number 74), whose same-store sales growth hit 6 percent last year.
The list is dominated by health and medical companies, 40 in all. They range from Cytyc (number 40), which develops tests for cervical and breast cancer screening, to newcomer Bentley Pharmaceuticals (number 76), a generic-drug maker.
Strong growth is not enough to make the list. A hint of trouble can banish a seemingly promising candidate. First Marblehead, which services student loans, looked great on paper. But its reliance on gain-on-sale accounting — perfectly legal — can distort results by booking revenue long before the cash comes in. (Separately, its chief executive resigned in late September after allegedly violating the company's gift policy.)
Fifteen companies grew off the list this year. Among them: Fair Isaac, which helps businesses analyze customers. An 11-year veteran of the 200 Best, the company moves on after racking up $786 million in sales over the last 12 months. Our members have revenue between $5 million and $750 million. Net profit margins must be greater than 5 percent, and share prices above $5 as of Sept. 29. We still exclude financial institutions, utilities and REITs. A tip of the green visor to William O'Neil & Co. in Los Angeles, which helped crunch the numbers.