Is Northern Oil & Gas (NYSE: NOG) Undervalued or Overvalued?

Written By Wealth Daily Research Team

Updated April 19, 2020

Today is Wednesday, March 6, 2019 and here’s your daily small cap valuation.

Northern Oil & Gas (NYSE: NOG) 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 Northern Oil & Gas’ 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

Northern Oil & Gas’ price-to-book value (P/B) ratio of 77.51 is 5169.20% higher than its industry average of 1.471. 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)

Northern Oil & Gas’ 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

Northern Oil & Gas 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

Northern Oil & Gas has grown its gross margin by 91.17% 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.

The Takeaway

Northern Oil & Gas scored favorably on 1 of our 4 valuation metrics. With this in mind, we believe the stock is slightly overvalued.

We’ve been keeping an eye on a set of small-cap stocks that are a better value than Northern Oil & Gas. 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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