Today is Tuesday, March 5, 2019 and here’s your daily small cap valuation.
Vera Bradley (NASDAQ: VRA) 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 Vera Bradley’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
Vera Bradley’s price-to-book value (P/B) ratio of 1.176 is 84.20% lower than its industry average of 7.445. 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)
Vera Bradley’s free cash flow yield (FCF/EV) of 16.22% is 281.65% higher than its industry average of 4.25%. 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
Vera Bradley has grown its earnings per share (EPS) by 1040.00% 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
Vera Bradley has grown its gross margin by 4.58% 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.
Vera Bradley scored favorably on 4 of our 4 valuation metrics. With this in mind, we believe the stock is very undervalued.
We’ve been keeping an eye on a set of small-cap stocks that are a better value than Vera Bradley. 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.