Is Lumber Liquidators Holdings (NYSE: LL) Undervalued or Overvalued?
Today is Wednesday, March 13, 2019 and here’s your daily small cap valuation.
Lumber Liquidators Holdings (NYSE: LL) 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 Lumber Liquidators Holdings' 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
Lumber Liquidators Holdings' price-to-book value (P/B) ratio of 1.575 is 93.68% lower than its industry average of 24.93. 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)
Lumber Liquidators Holdings' free cash flow yield (FCF/EV) is undefined. That’s not good. FCF/EV is a fraction, and an undefined value generally means that the firm has a zero or a negative number as its enterprise value. It could also indicate that the company has failed to report the data used to calculate its enterprise value. Either way, we have to fault it for this.
Earnings per Share (EPS) Growth
Lumber Liquidators Holdings has grown its earnings per share (EPS) by 112.35% in the last year. That’s good. Many smaller, newer companies have negative earnings for a few years, but that’s okay as long as earnings are going up over time.
Gross Margin Growth
Lumber Liquidators Holdings has grown its gross margin by 3.27% 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.
Lumber Liquidators Holdings scored favorably on 3 of our 4 valuation metrics. With this in mind, we believe the stock is slightly undervalued.
We’ve been keeping an eye on a set of small-cap stocks that are a better value than Lumber Liquidators Holdings. 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.
P.S. Got another small-cap stock you want us to test with our valuation metrics? Leave the ticker symbol in the comments below.
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