12/05/2010

Relative Valuation

Relative valuation: estimates the value of an asset (company) by looking at the pricing of comparable assets relative to a common variable like earnings, cash flow book value or sales. The main focuses for this short post are companies with relative discounted valuation using their historical results in an attempt to find potential discounts to normalized results.


I started with companies below 100 million. At that point I only included strong balance sheets as evidenced by Enterprise value / Market Capitalization less than 1.60 and reducing total liabilities from 2007 to the TTM. Stable or reduced shares outstanding over the past 4 years were also included in this filter.

At this point I only accepted companies with a short balance as a percentage of float less than 5%. Enterprise to revenue less than 1.50 was also added. SGA (Selling General and administrative) /Revenue  less than .50 or 50% (SGA/Revenue <.50).

The list was now getting much smaller from the original .

But let’s now use this more focused list to further examine companies selling at a discount to their historical valuation (relative valuation) using sales and books to market capitalization. These balance sheet and income statement accounts are less susceptible to overly aggressive management.

The ideas below are extremely cheap based on the multiple financial metrics but please do the additional due diligence.

The next step was to include only companies with an average 2006 – 2009 P/S ratio less than the current TTM P/S and the average 2006 – 2009 P/B ratio less than the current TTM P/B.

HWG: The Hallwood Group Incorporated

Current Price on 12/02/ was $22.50 (36.9 Million)

EV per share = 28.52 (43.347 Million)

Average ROIC 06 to 09 was 4.5% , TTM ROIC is 26.66%

Average P/S 06 to 09 was .80 , TTM is .20

Average P/B 06 to 09 was 1.78 , TTM is .50



ITI: Iteris, Inc

Current Price on 12/02/ was $1.47 (51.15 Million)

EV per share = 1.58 (54.10 Million)

Average ROIC 06 to 09 was 13.19% , TTM ROIC is 4.50%

Average P/S 06 to 09 was 1.50 , TTM is .9

Average P/B 06 to 09 was 2.23 , TTM is 1.0



GPIC: Gaming Partners International

Current Price on 12/02/ was $5.88 (48.48 Million)

EV per share = 4.38 (35.90 Million)

Average ROIC 06 to 09 was 6.77% , TTM ROIC is 12.53%

Average P/S 06 to 09 was 1.15 , TTM is .8

Average P/B 06 to 09 was 2.10 , TTM is 1.2


There were a few additional candidates for example RIMG ($15.28), INOD ($3.01), ADGF ($4.50), NATH ($15.99), EVI ($1.08),SVT ($8.93),SPRO($2.29), HSKA($.44),ELSE ($4.07)

Click to get quotes and additional data from Yahoo

No comments: