Is Gladstone Investment Corporation (NASDAQ: GAIN) Undervalued or Overvalued?

Written By Wealth Daily Research Team

Updated April 19, 2020

Today is Thursday, May 2, 2019 and here’s your daily small cap valuation.

Gladstone Investment Corporation (NASDAQ: GAIN) 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 Gladstone Investment Corporation’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

Gladstone Investment Corporation’s price-to-book value (P/B) ratio of 0.9877 is 39.59% lower than its industry average of 1.635. 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)

Gladstone Investment Corporation’s free cash flow yield (FCF/EV) of 18.87% is 251.40% higher than its industry average of 5.37%. That’s 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 high free cash flow yield indicates that a company is performing efficiently — and that it’s in a good position to repay any debt on its books.

Earnings per Share (EPS) Growth

Gladstone Investment Corporation has grown its earnings per share (EPS) by 103.29% 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

Gladstone Investment Corporation’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.

The Takeaway

Gladstone Investment Corporation 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 Gladstone Investment Corporation. 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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