Today is Tuesday, May 19, 2020 and here’s your daily small cap valuation.
Sterling Bancorp (NASDAQ: SBT) 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 Sterling Bancorp’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
Sterling Bancorp’s price-to-book value (P/B) ratio of 0.4027 is 31.80% lower than its industry average of 0.5905. 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)
Sterling Bancorp’s free cash flow yield (FCF/EV) of 20.28% is 36.82% lower than its industry average of 32.10%. 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
Sterling Bancorp 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
Sterling Bancorp’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.
Sterling Bancorp scored favorably on 1 of our 4 valuation metrics. With this in mind, we believe the stock is slightly overvalued.
Editor’s Note: We’ve been keeping an eye on a set of small-cap stocks that are a better value than Sterling Bancorp. 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.