​Four Emerging Growth Super Value Plays

Joel Anderson  |


You’ll hear it a lot from investment professionals: watch out for a falling knife. A value trap can look good if all you’re considering is price ratios, but it won’t pay off in the end. And hey, a lot of the time, they’re right. Just because a stock is cheap, offering significantly more revenue or earnings for its price, does not necessarily mean it’s a smart investment.

But let’s be honest, some of us just can’t help ourselves. You see a good deal and you want to cash in. And, as far as stock-picking methods go, it’s not as though others are impervious to a bad call here and there. Value investing, like any other approach, can go wrong. It can also go very, very right.

Even when you’re looking at emerging growth stocks, using value as a yardstick isn’t foolproof, but it can net you some nifty returns when you land on the right stock. So, here’s a look at four small-cap companies that look like value investing on overdrive. Each of them has a P/E and P/FCF under 15, P/C under 3, and P/S and P/B under 1. What’s more, because it’s future earnings that tend to really matter, they’re sporting a Forward P/E that’s under 15 and a PEG of under 1.

Taken altogether, these are four stocks where you are getting a lot of bank for your buck. They may or may not pay off in the long run, but you can at least feel pretty confident you’re not overpaying.

SkyWest Inc. (SKYW)

Market Cap: $1.34 billion

Price: $26.44

SkyWest looks like a value investor’s dream on the surface. Not only is it very modestly priced for its assets and earnings, including a P/FCF ratio of just 4.42, but the company sports a solid gross margin and even pays a dividend of $0.20 a share (0.77% yield).

Why so cheap? Well, the company’s revenues have been on the decline for half a decade, which never really tends to juice a stock. The company’s business is clearly receding some, but SkyWest may be turning that around. Analysts, who generally have a good rating on the stock, are boosting their estimates for earnings, which were up sharply last year after taking a loss in 2014. Plus, as the Forward P/E and PEG indicate, things do currently project to improve as time goes on.

Buying in now would be getting into a stock that just finished a double-top chart pattern, which isn’t ideal, but the fact that the company has gained 75% since the start of February is likely a sign that things needed to slow down some. That said, gaining 75% and still have price valuations as low as SkyWest could also be a sign the company has room left to keep gaining.

Net 1 Ueps Technologies (UEPS)

Market Cap: $492.49 million

Price: $8.94

Fintech is a hot space at the moment, and South African payment solutions company Net 1 Ueps Technologies is among the public companies operating in it at the moment. Given that fact, one might expect the company to bear the sort of frothy, growth-stock valuation that would normally make the value investor scoff. Not so for Net 1 Ueps. The company’s price is downright miserly when compared to its earnings and sales.

The explanation likely has to do with the company’s fiscal 2016 that ended with the start of July. There, after posting successive years for growing revenues, improving margins, and increasing profits, Net 1 Ueps took a clear step back from 2015. In fact, the company’s 2016 numbers look almost identical to its 2014 numbers, never something investors want to see.

Still, there’s some reasons to look positively on the company’s future. For starters, while revenue fell to near 2014 numbers, the company boosted net income by 17.6%. What’s more, the one analyst with coverage on the stock is projecting revenues to bounce back in this coming year. When you factor in that the stock’s chart appears to show a support line just under $9 a share, the future could be brighter for Net 1 Ueps shareholders.

Seadrill Partners (SDLP)

Market Cap: $277.72 million

Price: $3.17

Bermuda-based British offshore drilling company Seadrill Partners looks, at least at first glance, like a pretty promising play. The company features a series of attractive price ratios in addition to consistently growing revenues for several years in a row and continuing to turn in a profit and pay a dividend of $0.10 a share, good for a yield of an eye-popping 12.62%.

But, as one might expect, there’s more than meets the eye here. The company was downgraded by Wells Fargo (WFC) analysts after its recent Q2 earnings report. Despite finishing in a solid cash position due to a debt repayment and sale of assets, the company has a lot of debt that’s coming due in the near future and that has investors and analysts alike looking fairly spooked.

This is all coming on the heels of Seadrill cutting its dividend from $0.25 a share to $0.10 in July, something prompted a downgrade from Morgan Stanley and prompted a selloff that cut the company’s value in half, and continued weakness in the global market for crude oil.

If Seadrill ends up getting through its current issues and manages to meet debt maturities as they arise, there’s a chance a brighter future lies out there for the company, especially if oil prices bounce back or parent company Seadrill opts to acquire the company. However, the alternative is that the company can’t refinance its debt and ends up filing for bankruptcy.

This would clearly represent a pretty high-risk play, but the rewards could be significant if things play out the way Seadrill Partners investors are hoping (praying) they will.

Beazer Homes USA (BZH)

Market Cap: $373.92 million

Price: $11.43

Beazer is a home builder operating in some 16 states, and it’s currently looking like a pretty hot stock. With the housing market appearing to be hot for the time being, most home builders have been seeing real gains for their stock this year after bottoming out in February. Since hitting its 52-week low, the company has roared back and nearly doubled its value in just over half a year. Likewise, the company is showing significant revenue growth over the last five years, growing revenue over 60% from 2012 to 2015 and swinging the company into the black in the process.

Given that the stock has really taken off and boasts consistent revenue growth, the price valuations on Beazer are somewhat baffling. When a stock nearly doubles in less than a year and still sports a P/S figure of just 0.21 or a PEG of 0.37, it’s entirely possible that investors are missing an opportunity with this stock.

The back story would be that the housing market could be negatively affected by the Fed boosting rates, something that’s looking more and more likely by year’s end. Beazer, in particular, with debt-to-equity and long term debt-to-equity ratios of over 2, is currently fairly reliant on a hot housing market for its success.

It’s hard to say how this all plays out, but if you’re willing to swallow the risk of a downturn in the housing market putting Beazer in serious trouble, this could look like a pretty appealing buying opportunity.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SDLP Seadrill Partners LLC Representing Limited Liability Company Interests 2.85 -0.29 -9.24 98,638 Trade
BZH Beazer Homes USA Inc. 10.67 0.13 1.23 239,639 Trade
UEPS Net 1 UEPS Technologies Inc. 4.03 -0.02 -0.49 163,722 Trade
SKYW SkyWest Inc. 60.47 0.90 1.51 111,964 Trade

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