Is Hudson Technologies (NASDAQ: HDSN) Undervalued or Overvalued?
Today is Friday, November 8, 2019 and here’s your daily small cap valuation.
Hudson Technologies (NASDAQ: HDSN) is a small-cap stock that could have a lot of potential. But it’s hard to value smaller companies like this. Conventional valuation metrics like price-to-earnings (P/E) ratio, profit margin, and return on equity (ROE) may not be available for them.
To get a sense of Hudson Technologies' true valuation, let’s compare it to its industry peers — and to itself one year ago. We’ll look at four small cap valuation metrics…
Price-to-Book Value (P/B) Ratio
Hudson Technologies' price-to-book value (P/B) ratio of 0.5735 is 82.43% lower than its industry average of 3.264. That’s good. A low P/B ratio indicates that the company has a solid balance sheet — and that based on its balance sheet, the stock is trading for unusually cheap.
Free Cash Flow Yield (FCF/Enterprise Value)
Hudson Technologies' free cash flow yield (FCF/EV) of 14.66% is 276.86% lower than its industry average of 3.89%. That’s not good. This metric compares free cash flow (the amount of cash left over after all expenses and capital expenditures have been paid) with enterprise value (a comprehensive alternative to market cap that includes cash and debt).
A low free cash flow yield indicates that a company is performing inefficiently — or that it’s struggling with the debt on its books.
Earnings per Share (EPS) Growth
Hudson Technologies has not grown its earnings per share (EPS) in the last year. That’s not good. Negative earnings aren’t the end of the world — they’re fairly common among smaller, newer companies — but if earnings are falling over time, that’s definitely a bad sign.
Gross Margin Growth
Hudson Technologies has grown its gross margin by 90.64% in the last year. That’s good. Many young small caps are unprofitable, so net profit margin isn’t always a useful measure. But a growing gross margin means that the company’s operations are getting more and more profitable over time.
Hudson Technologies scored favorably on 2 of our 4 valuation metrics. With this in mind, we believe the stock is appropriately valued.
Editor’s Note: We’ve been keeping an eye on a set of small-cap stocks that are a better value than Hudson Technologies. These stocks have the potential for bigger gains — and they’re far less risky than the speculative small caps many investors gamble on. Enter your email below to learn more.
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