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One way to search for potentially undervalued firms is by using the ratio levered free cash flow/enterprise value. Companies with high ratios may be undervalued.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm’s value from all ownership sources: Market cap, outstanding debt, and preferred shares. From this value we subtract cash holdings because, in the event of a takeover, that cash would be used towards the takeover price.

We used this ratio to screen for potentially undervalued stocks among the universe of stocks trading under $5.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.




We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.



List sorted by levered free cash flow/enterprise value.

1. Crown Media Holdings Inc. (NASDAQ:CRWN): Owns and operates pay television channels in the United States and Puerto Rico. Market cap of $478.37M. Price currently at $1.34. Levered free cash flow/enterprise value at 23.54% (levered free cash flow at $204.57M and enterprise value at $869.03M). The stock is a short squeeze candidate, with a short float at 14.64% (equivalent to 34.4 days of average volume). The stock has had a couple of great days, gaining 6.4% over the last week.

2. EnergySolutions, Inc (NYSE:ES): Provides technology-based nuclear services to government and commercial customers primarily in the United States and the United Kingdom. Market cap of $319.61M. Price currently at $3.63. Levered free cash flow/enterprise value at 23.32% (levered free cash flow at $230.64M and enterprise value at $988.82M). The stock is a short squeeze candidate, with a short float at 7.05% (equivalent to 5.88 days of average volume). The stock has performed poorly over the last month, losing 29.13%.

3. ReneSola Ltd. (NYSE:SOL): Engages in the manufacture and sale of solar wafers and solar power products. Market cap of $308.32M. Price currently at $3.61. Levered free cash flow/enterprise value at 19.59% (levered free cash flow at $124.51M and enterprise value at $635.53M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.96). The stock has had a couple of great days, gaining 7.58% over the last week. The stock has performed poorly over the last month, losing 21.81%.

4. Denison Mines Corp. (NYSEMKT:DNN): Engages in the exploration, development, mining, and milling of uranium primarily in the United States and Canada. Market cap of $630.84M. Price currently at $1.70. Levered free cash flow/enterprise value at 17.15% (levered free cash flow at $86.59M and enterprise value at $504.92M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.81). The stock has had a couple of great days, gaining 14.69% over the last week. The stock has performed poorly over the last month, losing 20.39%.

5. Charming Shoppes Inc. (NASDAQ:CHRS): Operates as a specialty apparel retailer primarily for women in the United States. Market cap of $359.21M. Price currently at $3.20. Levered free cash flow/enterprise value at 16.60% (levered free cash flow at $52.12M and enterprise value at $314.04M). This is a risky stock that is significantly more volatile than the overall market (beta = 3.45). The stock is a short squeeze candidate, with a short float at 9.86% (equivalent to 7.38 days of average volume). The stock has performed poorly over the last month, losing 24.08%.

Levered free cash flow and enterprise value sourced from Yahoo! Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 5 Stocks Under $5 Undervalued To Levered Free Cash Flows