It’s All About Growth in This Column

So far, it’s been a great second quarter earnings season for small-cap stocks. Many of the companies we’ve talked about in this column have recently reported excellent financial results. With the economy seemingly strengthening, the future looks bright for the small-cap sector of the market.

Some of the companies we’ve examined over the last two months produced excellent numbers in the most recent quarter.

PetMed Express (NASDAQ/PETS) reported that its second quarter earnings grew 95%. LCA-Vision (NASDAQ/LCAV) saw its second quarter revenues increase 53% over the comparable quarter in 2004. Coastal Contacts (TSXV/COA) recently reported that its second quarter revenues grew 154% over the comparable period. Online Resources (NASDAQ/ORCC) produced revenue growth of 42% and earnings growth of 48% in its most recent quarter.

There’s no question that smaller-cap companies are doing well in this economy. The big question is–Will this growth continue?

From my perspective, the answer is, “Yes.” Even though short- term interest rates are rising, they are still very low, historically, and the cost of money is very much affordable for businesses and individuals. Inflation seems relatively tame, even as oil and gas prices remain high. The fact is that energy prices are going to go where they want to go. It’s just the cost of doing business. There isn’t much we can do about it.

There’s a lot going for this economy. Companies are running lean operations. The technology sector is improving. The manufacturing sector is improving. Employment remains strong. Consumer confidence is quite high. Everyone fears a bubble, but I think the real estate market will only keep going up. Corporate earnings are robust. Business confidence is solid.

Despite all the hype, despite all the speculation, you can’t argue with the numbers–and the numbers for this second quarter are just plain great. For the small-cap market, in particular, solid economic growth is going to continue.