Fundamental analysis of small-cap stocks

Fundamental analysis of Fluor Corporation (FLR), June 19, 2017

Description:

Fluor Corporation is an american engineering and construction company based in Dallas, Texas.

Valuation:

Fluor is expensive at 22.5 times trailing earnings. Calculating a P/E over an average of the past three years’ earnings it comes in marginally better at 16.8. The Price to book is 2.3 which must be considered high.

Balance sheet:

The company has a Working capital of $1.8bn which looks healthy. Its Debt to equity ratio is 1.8 which is a little bit on the high side. The Return on equity is 9% which is not associated with a growth company.

Free cash flow and dividend:

Fluor corporation last year had a Free cash flow of $470m which equates to $3.34 per share. The Freen cash flow allows the company to pay a dividend of $0.84 per share. With a yield of only 1.9% it seems that the company could do more.

Conclusion:

Fluor Corporation is a well run company with solid earnings and a good Free cash flow. However, at 22.5 times trailing earnings it is too expensive for my taste.

 

Fundamental analysis of ETAM S.A., June 12, 2017

Brown picture of styleized E with text about ETAMGROUPE

Description:

ETAM is a French apparel company that specializes in lingerie. It is a family business based in Paris, France. A bid for the shares of the company was recently put forward by the majority shareholder families at €49.30

Valuation:

Until about a week ago the stock was cheap with a trailing P/E below 10, but because a bid for the company was recently put forward the P/E is now pushing towards 20.

Balance sheet:

The company has a healthy Working capital of €37.3m, but the Debt to equity ratio is a little bit high at 1.8.

Free cash flow and dividends:

ETAM has a Free cash flow of €8.6m which equates to €1.20 per share. This allows the company to pay out a dividend of €0.70 per share which is not very good considering that the current dividend yield is only 1.4%

Conclusion:

Would I buy the stock at current prices? The answer to that question is no, but the offer of selling the stock at €49.30 is too good to refuse!

 

Fundamental analysis of Stanley Black & Decker, June 10, 2017

Yellow picture of wrench with the text StanleyBlack & Decker

Description:

Stanley Black & Decker is a Fortune 500 manufacturer of industrial tools, household hardware and provider of security products. Its headquarters are located in New Britain, Connecticut.

Valuation:

At $140, the Price to earnings ratio is 21.5 (trailing earnings) which in my opinion is expensive. The Price to the average of the past three years’ earnings is hardly better at 24.6. The Book value of the company is negative because they have a lot of intangible assets (which should be subtracted from the Equity to arrive at the Book value).

 

Balance sheet:

With Current assets of $4.8bn and Current Liabilities of $2.8bn, the company has a Working capital of $2bn which is a lot of cash in the bank. They have a Debt to equity ratio of 1.5 which is not out of the ordinary.

 

Free cash flow and dividend:

Stanley Black & Decker has a Free cash flow of $1.14bn which allows it to pay out a dividend of $2.26 per share (or a 1.6 per cent yield). The company is part of the Dividend aristocrats, which is a list of the companies that has paid out uninterrupted and rising dividends for 25 straight years.

 

Conclusion:

Stanley Black & Decker is a well run company with solid earnings and a good free cash flow. However, the current price is too high for my taste.

 

 

 

Fundamental analysis of Leggett & Platt Inc., June 2, 2017

Valuation:

Leggett & Platt seems expensive at a trailing P/E of 19.1. Over the average past three years the P/E is even worse at 27.7.

Balance sheet:

With a Working capital of $620m seems well capitalized. However the company has a Debt to equity ratio of 1.7, a figure associated with high risk.

Free cash flow and dividend:

Leggett & Platt has a Free cash flow of $430m which equates to $3 per share. Of this the company pays out a dividend of $1.12 (2.5%) which seems reasonable.

Conclusion:

Leggett & Platt is a well run company with solid earnings and good cash flow. However, at these prices I would not buy new stock.

 

 

 

 

Fundamental analysis of Actia Group (ticker: PAR-ATI), May 29, 2017

Green picture of electronic circuit and with text about Actia Group

Description:

Actia Group is an international electronics group that is situated in Toulouse, France. They have operations in both the automotive and the telecommunications sectors.

Valuation:

Actia is cheap at a trailing P/E of 8.5. The P/E over the past three years’ earnings is good at 10.6. The Price to Book value is a little bit on the high side at 1.7.

Balance sheet:

The company has a lot of debt with a Debt to equity ratio of 1.9. Otherwise the balance sheet looks good with a Working capital of €88 million.

Free cash flow and dividend:

The company has a Free cash flow of €12 million with equates to 61 euro cents per share. Out of this they pay a low dividend of 10 euro cents which equates to a yield of 1.1%. The dividend history is not the best. The company only has 3 years of consecutive history of paying out uninterrupted and increasing dividends.

Conclusion:

The company is reasonably priced at current levels, but the dividend is low due to high R&D costs. Another problem with the company is debt with a high Debt to equity ratio. I would have bought the company if they paid a better dividend. Now it’s a HOLD.

 

 

 

 

 

Fundamental analysis of Hormel Foods Corp. (ticker: HRL), May 26, 2017

White picture with text Hormel Foods

Description:

Hormel Foods produces and commercializes various meat and food products.

 

Valuation:

The company is expensive at a trailing P/E of 21.5 and considering an average of the past three years’ earnings it looks even worse at 26.3. The Book value is negative due to the high Goodwill component of the Balance sheet which consequently gives a negative Price to Book value.

 

Balance sheet:

The Current assets to Current liabilities ratio looks good at 1.9 with a Net working capital of $975 million. The biggest problem for Hormel is its debt where the Debt to equity ratio is very high at 5.0.

 

Cash flow and dividend:

The Free cash flow last year came in at $735 million which equates to $1.36 per share. The Free cash flow allows the company to pay out a dividend 58 cents (1.7%). The dividend has been uninterrupted and increasing for more than 25 years which makes the part of the Dividend aristocrats.

 

Summary:

Hormel would be a good investment if it was about half the price, but now it is too expensive for me. I would not buy new stock at this point, but if you already own it by all means : HOLD.

Fundamental analysis of Guillemot Corp. (ticker: PAR – GUI), May 22, 2017

Picture of vinyl disc and text about Guillemont Corporation

Description:

Guillemot makes hardware for DJ’s and for the gaming industry. The company is based in Brittany – France and its has a Total revenue of €64,200,000.

Valuation:

The company seems reasonably valued at a P/E of 9.2. However, its earnings history makes the current P/E ratio a bit deceptive. Its result last year was positive, but the previous four years it made a loss. Altogether Guillemot’s earnings need to be taken with a pinch of salt.

The Price to book ratio looks alright at 1.4.

 

Cash flow and dividend:

The company has a negative free cash flow and consequently it does not pay any dividend (which considering its erratic earnings history is not strange).

 

Balance sheet:

The company has a Net working capital of €21.4 m which tells us that the company can pay its bills in the short-term. The Debt to equity ratio, on the other hand, is high at 1.2. The Return on equity is a feeble 11%.

 

Conclusion:

Guillemot is an interesting company with a lot of potential. However for somebody looking for value in the small-cap space its earnings seem to be a little bit too erratic.

 

Fundamenal analysis of S&W Seed Company (ticker: SANW), May 19, 2017

Black and green picture with text about S&W Seed Company

Description:

S&W Seed Company is an agricultural company that is specializing in the breeding, growing and commercialization of alfalfa seeds.

 

Valuation:

SANW is expensive at trailing a P/E of 172. The average earnings over the past three years is looking even worse at a negative 6 cents.

Consequently the P/E ratio over the average three years is negative.

The Price to Book value is 2.9 which is very high.

The earnings are to say the least erratic over the years. Last year they 2 cents per share and the year before the company had a loss of 25 cents per share.

The Shiller earnings since 2009 are a negative 4 cents.

 

Balance sheet:

Then we come to the balance sheet and here things looks a little better.

The Working capital is a solid $16,000,000 which equates to $1.08 per share.

The company has a Debt to equity ratio of 0.9 and a Current assets to Current liabilities ratio of 1.4.

 

Free cash flow and dividend:

The company has a good Free cash flow of $4,000,000, but they do not pay out any dividend which seems reasonable given their non-existent earnings.

 

Conclusion:

S&W Seed has great potential, but it is not an investment for me at current prices.

 

Fundamental analysis of PDL Biopharma Inc. (ticker: PDLI), May 15, 2017

Green picture of medicine with text about PDL BioPharma

Description:

PDL BioPharma Inc. has two major sources of income: They generate income from royalty agreements from bigger pharmaceutical companies and they sell generically manufactured products in the United States and in Europe.

Valuation:

The stock is very cheap at a trailing P/E of 5.7 and the P/E for the average 3 preceding years is 1.6 which looks very cheap. The price to book value is 0.5 which is also very good.

Balance sheet:

The Balance Sheet looks very good working capital and low debt levels. The only thing that is wrong with the company is the decreased earnings for 2016 compared to 2015. The lower earnings continued in Q1 of 2017 which indicates structural problems.

Free cash flow and dividend:

The company’s free cash flow is a solid $100 Million which equates to $0.62 per share. Of this they were only paying out 10 cents in dividends last year but their dividend history seems a bit erratic.

Conclusion:

The company is active in a niche which is highly dependent on clinical trials and permits from the NIH which makes it tricky. But if you are like me and you are looking for cheap stocks and low valuations PDL Biopharma certainly looks cheap at these prices.

Fundamental analysis of Quarto Group Inc. (ticker: LON:QRT), May 8, 2017

Green picture of book icon with text about Quarto Group Inc.

Valuation:

Quarto Group is lossmaking so a trailing P/E value does not make sense.

However, when looking at a P/E with the average past three years’ earnings it becomes 18.4 (when taking into account last year’s loss).

The Shiller P/E over 7 years comes in at 11.7 so the company does not look overvalued.

Balance sheet:

The company has a lot of goodwill which will be subtracted from the equity in order to get to Book value.

The equity valuations are therefore not looking good.

Debt to equity is 3.6 and and Price to Book value is 19.2.

Free cash flow and dividends:

Free cash flow is good at $40 million which allows for a good dividend of 10 cents.

Quarto has a history of paying out uninterrupted and increasing dividends for more than ten years.

Summary:

If you can live with the fluctuating earnings then Quarto Group Inc. is actually not expensive.

However the debt situation of the company makes it tricky. At current prices I would call it a HOLD.

Fundamental analysis of Cummins Inc. (ticker: CMI), May 4, 2017

Figure of natural gas turbine with text about Cummins Inc.

Last week I listened to an interesting interview with the famous gold investor Martin Armstrong on Eric Townsend’s Macrovoices.

In the interview Armstrong lays out a bullish case for stocks even if he recognizes that they are already overvalued.

The reason Armstrong gives is that bond yields are so low that stocks by default look attractive.

This especially is true for well ran companies with solid earnings, low debt and good dividend yields.

This brings me to today’s stock which is Cummins Inc.

Valuation:

The stock is expensive at a P/E ratio of 19.3 and taking the average over the past three years it only becomes marginally better at a P/E of 19.0.

The Price to Book ratio is 4.2 which is exceptionally high.

Free cash flow and Dividend:

The company earns a Free cash flow of $1.4 billion which allows them to pay out a reasonable dividend of $4.00 or 2.5%.

The dividend history looks good with consistent and increasing dividend payments for more than 15 years.

Balance sheet:

The Balance sheet looks good with a Net working capital of $3.8 billion and a Current assets to Current Liabilities ratio of 1.8.

The Debt to equity ratio is 1.1 which is on the high side in my opinion, but nothing out of the extraordinary.

Summary:

Cummins Inc. to me looks overvalued at current prices. It is however a well run company with solid earnings and cash flow. Had these been normal times I would not have bought such expensive shares, but Martin Armstrong may be on to something.

 

Friday, April 28, 2017

Light blue picture of cluster of grapes with text about Dillard's

Dillard’s is traded on the New York Stock Exchange under the ticker symbol DDS.

Valuation:

Dillard’s is a well ran business with solid earnings, solid cash flow and overall performance.

The trailing P/E ratio 11.2 and the P/E over the average three years is 8.4.

Free cash flow and dividend:

Free cash flow is healthy at $412,000,000 which corresponds to $12 per share.

The dividend is also at a paltry 26 cents per share which is too low considering the Free cash flow.

Balance sheet:

But DDS’ overall financials look more than reasonable.

For instance, the ratio between Current assets and Current liabilities is 1.9, but the Debt to equity ratio is a little bit high at 1.3.

Return on equity is 10%.

Negatives are that the company is involved in buying its own stock which only favor the ones who are selling the stock.

Summary:

Dillard’s seem reasonably priced with a good Free cash flow, but with a high Debt to equity ratio.

I would consider the stock as a BUY at these prices.

 

 

Monday, April 24, 2017

Today I will look at one of the best value Faroese companies around: P/F Bakkafrost A/S.

Orange figure of fish with text about Bakkafrost

The company is traded on the Norwegian Stock Exchange under the ticker BAKKA but they report their financials in Danish kroner.

Valuation:

Bakkafrost looks cheap at a P/E ratio of 7.9, but when looking at the average of the past three years’ earnings it comes in at 10.8 which does not look that impressive.

The Price to book ratio is 3.0 which is not cheap.

Balance sheet:

The Balance sheet on the other hand looks more than OK. The company has a Debt to equity ratio of 0.5 and a Working capital to debt ratio of 1.6.

Current assets to current liabilities is very good at 7.2.

Free cash flow and dividend:

The company has a Free cash flow of 163 Million DKK which equates 3.34 DKK a share.

This does not pay for the dividend at 8.70 DKK per share, but the dividend has been steady and increasing for the past 5 years.

Summary:

Even if the stock is not really cheap at 206 DKK, I would still consider it a BUY today.

 

 

 

Thursday, April 20, 2017

Today I will take a look at one of the best run French companies: Inter Parfums SA (ticker (Paris): ITP)

Blue figure of perfume bottle with text about Inter Parfums

Description:

Inter Parfums is a cosmetics and perfume company based in Paris.

The company is very well run with solid earnings and cash flow.

Valuation:

However, for the stability you will have to pay. The trailing P/E ratio is 30.0 and the P/E ratio over the past trailing years’ is 32.6.

The Price to book value is a hefty 4.1.

Balance sheet:

The balance sheet looks very good: The company has a Working capital of €280 million and a Debt to equity ratio of 0.4 which is considered to be low risk.

The ratio between Current assets and Current liabilities is also good at 3.5.

Cash flow and dividend:

The company has a Free cash flow of €42 million which equates to €1.28 per share.

Of this they pay out a dividend of €0.50 which amounts to a yield of 1.7% – a reflection of the high price.

Summary:

In summary I would not buy new stock at these prices. However, if you already own it I would hold on to the stock and keeping on reinvesting the dividend.

 

Monday, March 20, 2017

Today I would like to look at fundamental analysis of The Cato Corporation (ticker: CATO).

a32e38

Valuation

The company is an extremely well run apparel business based in North Carolina.

The trailing P/E value is 9.0 and if you look at the preceding three years’ earnings the P/E comes in at 10.1.

The Price to Book is a healthy 1.5.

Balance sheet

The company has a healthy looking Balance sheet with a Working capital of $280 million and Net working capital of $242 million.

The Debt to Equity ratio is 0.56 which is considered as low risk.

Cash flow and dividend

The Free cash flow is $67 million and the company pays out a dividend of $1.20 per share.

The company only has three years’ history of paying out uninterrupted and increasing dividends, but this is misleading because the dividends have been paid for more than 15 years.

The current dividend yield is 5.5% which is good.

My recommendation:

At these prices The Cato Corporation is a BUY.

 

 

Monday, March 13, 2017

Today I would like to look at fundamental analysis of one the best ran British small-cap stocks, Treatt Plc.

Blue picture of perfume icon with text about Treatt Plc.

Valuation

As always I prefer first to look at the valuation numbers and here it becomes clear that the stock is expensive.

You have to pay a hefty 28.8 times the trailing earnings for the stock.

When you look at the average three preceding years, the stock is even more expensive at 32.7 times trailing earnings.

Already here I would hesitate, but it gets worse. At these market prices, you are paying 5.2 times Book Value which obviously is not cheap.

Balance Sheet

The Balance Sheet looks far better. The Debt to Equity ratio is 0.9 and the Working Capital to Debt is 1.1.

The ratio between Current Assets and Current Liabilities is 3.3 which is very good.

Treatt Plc. has a Net Working Capital of £21,000,000 which equates to about 40p per share.

Dividends

The dividend history looks good with more than 15 years of non-interrupted and increasing dividends.

The current dividend yield is only 1.3 percent which obviously is a reflection of the high price.

Conclusion:

If you already own Treatt Plc. by all means keep the stock, but if you do not I wouldn’t buy it at these prices.

The Balance Sheet looks very good, but I would not buy the assets at this price.

The company has a good dividend history, but the feeble yield is a reflection of the price.

 

Thursday, February 23, 2017

Blue picture with brown car icon with text about Tesla Motors.

The reason for this is that I’ve recently been watching a Youtube channel called Now You Know that show a lot of news about Tesla Motors.

So I thought that I should look into the hype and see for myself if there was anything to it.

What I did was that I went to Tesla’s website and I downloaded their financial reports.

The numbers are shocking.

Tesla has been in business for almost ten years and in none of those they have made any money.

Granted, the loss last year was less than the year before, but still the second largest loss out of these ten years.

Looking at the balance sheet it’s very much the same story.

Its total debt is a staggering 16.8 billion dollars and the free cash flow is a negative 1.4 billion.

No wonder that the stock is losing more than 5 percent as I write this.

Who in their right mind would want to invest in something like that?

It’s clear that if you buy Tesla stock you hope that the earnings will materialize in the future.

At $259 those hopes are very expensive.

Elon Musk may be an excellent visionary, but his abilities as a CEO of Tesla Motors are not as good.

If you would like to learn more about fundamental analysis you can do that here.

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