Today is Monday, May 13, 2019 and here’s your daily small cap valuation.
Modine Manufacturing Company (NYSE: MOD) 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 Modine Manufacturing Company’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
Modine Manufacturing Company’s price-to-book value (P/B) ratio of 1.238 is 24.05% lower than its industry average of 1.63. 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)
Modine Manufacturing Company’s free cash flow yield (FCF/EV) of 0.94% is 11.32% lower than its industry average of 1.06%. 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
Modine Manufacturing Company has grown its earnings per share (EPS) by 680.14% 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
Modine Manufacturing Company has grown its gross margin by 1.74% 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.
Modine Manufacturing Company scored favorably on 3 of our 4 valuation metrics. With this in mind, we believe the stock is slightly undervalued.
Got another small-cap stock you want us to test with our valuation metrics? Leave the ticker symbol in the comments below.