Today is Friday, July 26, 2019 and here’s your daily small cap valuation.
Acceleron Pharma (NASDAQ: XLRN) 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.
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To get a sense of Acceleron Pharma’s 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
Acceleron Pharma’s price-to-book value (P/B) ratio of 4.317 is 20.56% lower than its industry average of 5.434. 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)
Acceleron Pharma’s free cash flow yield (FCF/EV) of -5.83% is 258.42% lower than its industry average of 3.68%. 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
Acceleron Pharma 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
Acceleron Pharma’s gross margin is undefined. That’s not good. This may indicate that the company has failed to file an income statement properly. We have to fault it for this.
Acceleron Pharma scored favorably on 1 of our 4 valuation metrics. With this in mind, we believe the stock is slightly overvalued.
Got another small-cap stock you want us to test with our valuation metrics? Leave the ticker symbol in the comments below.