Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

In the never-ending search for potentially undervalued stocks, one idea is to use the ratio levered free cash flow/enterprise value. Companies with higher ratios may be undervalued relative to their levered free cash flows.

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 ran a screen on stocks currently trading under $5 a share for those with relatively high ratios of levered free cash flow/enterprise value, possibly indicating that they are also undervalued.

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.)

Do you think these stocks will soon outperform? Use this list as a starting point for your own analysis.

List sorted by LFCF/EV.

1. Hecla Mining Co. (NYSE:HL): Engages in the discovery, acquisition, development, production, and marketing of silver, gold, lead, and zinc. Market cap of $1.34B. Price (as of 01/13) at $4.63. Levered free cash flow/enterprise value at 21.82% (levered free cash flow at $268.39M and enterprise value at $1.23B). This is a risky stock that is significantly more volatile than the overall market (beta = 2.1). The stock is currently stuck in a downtrend, trading 14.99% below its SMA20, 21.35% below its SMA50, and 35.29% below its SMA200. It's been a rough couple of days for the stock, losing 16.52% over the last week.

2. Crown Media Holdings Inc. (NASDAQ:CRWN): Owns and operates pay television channels in the United States and Puerto Rico. Market cap of $442.41M. Price (as of 01/13) at $1.20. Levered free cash flow/enterprise value at 20.20% (levered free cash flow at $186.20M and enterprise value at $921.63M). The stock is a short squeeze candidate, with a short float at 14.43% (equivalent to 40.83 days of average volume). It's been a rough couple of days for the stock, losing 7.52% over the last week.

3. Cedar Realty Trust, Inc. (NYSE:CDR): Engages in the ownership, operation, development and redevelopment of supermarket-anchored community shopping centers and drug store-anchored convenience centers in the United States. Market cap of $325.77M. Price (as of 01/13) at $4.66. Levered free cash flow/enterprise value at 18.31% (levered free cash flow at $210.55M and enterprise value at $1.15B). The stock has had a good month, gaining 26.72%.

4. Affymetrix Inc. (NASDAQ:AFFX): Engages in the development, manufacture, sale, and servicing of consumables and systems for genetic analysis in the life sciences and clinical healthcare markets. Market cap of $328.39M. Price (as of 01/13) at $4.52. Levered free cash flow/enterprise value at 15.72% (levered free cash flow at $48.70M and enterprise value at $309.86M). This is a risky stock that is significantly more volatile than the overall market (beta = 2.07). The stock is a short squeeze candidate, with a short float at 9.73% (equivalent to 6.77 days of average volume). The stock has had a couple of great days, gaining 12.02% over the last week.

5. Charming Shoppes Inc. (NASDAQ:CHRS): Operates as a specialty apparel retailer primarily for women in the United States. Market cap of $547.69M. Price (as of 01/13) at $4.77. Levered free cash flow/enterprise value at 15.25% (levered free cash flow at $83.26M and enterprise value at $545.85M). This is a risky stock that is significantly more volatile than the overall market (beta = 3.46). The stock is a short squeeze candidate, with a short float at 16.28% (equivalent to 8.1 days of average volume). The stock has gained 40.3% over the last year.

6. Vonage Holdings Corporation (NYSE:VG): Provides voice and messaging services over broadband networks to residential, small office, and home office customers primarily in the United States, Canada, and the United Kingdom. Market cap of $550.37M. Price (as of 01/13) at $2.36. Levered free cash flow/enterprise value at 11.64% (levered free cash flow at $64.98M and enterprise value at $558.46M). The stock is a short squeeze candidate, with a short float at 5.67% (equivalent to 5.49 days of average volume). The stock has lost 25.15% over the last year.

*LFCF/EV data sourced from Yahoo Finance; all other data sourced from Finviz.

Source: 6 Stocks Under $5 That Look Undervalued To Cash Flows