Today is Tuesday, July 23, 2019 and here’s your daily small cap valuation.
Avis Budget Group (NASDAQ: CAR) 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 Avis Budget Group’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
Avis Budget Group’s price-to-book value (P/B) ratio of 8.28 is 352.46% higher than its industry average of 1.83. That’s not good. A high P/B ratio may indicate that there’s something wrong with the company’s balance sheet — or that the stock is trading for an unusually high price based on its balance sheet.
Free Cash Flow Yield (FCF/Enterprise Value)
Avis Budget Group’s free cash flow yield (FCF/EV) of -62.34% is 1650.75% lower than its industry average of 4.02%. 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
Avis Budget Group 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
Avis Budget Group has grown its gross margin by 1.23% 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.
Avis Budget Group 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.