Today is Monday, February 25, 2019 and here’s your daily small cap valuation.
Heritage Insurance Holdings (NYSE: HRTG) 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 Heritage Insurance 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
Heritage Insurance Holdings’ price-to-book value (P/B) ratio of 1.022 is 29.86% lower than its industry average of 1.457. 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)
Heritage Insurance 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
Heritage Insurance Holdings has grown its earnings per share (EPS) by 6,800% 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
Heritage Insurance Holdings’ 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.
Heritage Insurance Holdings scored favorably on 2 of our 4 valuation metrics. With this in mind, we believe the stock is appropriately valued.
We’ve been keeping an eye on a set of small-cap stocks that are a better value than Heritage Insurance 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.