L.B. Foster Co. (NASDAQ:FSTR) is a $116.72 Million railroad services and supply company. At the same time, the enterprise value of the company is $293.28M. With market caps between $50 million and $300 million, many stocks like this are considered Micro Caps. This stock may be undervalued based on several key valuation ratios.
So far, fiscal 2015 earnings results have been negatively affected by a Goodwill Write-down of $80.3 million. This write-down is certainly related to the depressed value of energy (oil and coal) and may be a temporary factor affecting the business. Adjusting for this one-time item, earnings would have been $32.6 million for the three quarters ending on September 30, 2015. That's about $3.15 per diluted share. In an earnings call with investors, management indicated that the EPS target for Q4 is around $0.10. So, adjusted EPS for the year might be closer to $3.00 to $3.25.
The current dividend yield of 1.39% is respectable, but possibly not high enough to significantly support the stock price.
The trailing P/E is the inverse of the earnings yield. It is price divided by earnings. Lower P/E ratios are better than high ones. When looking at an adjusted earnings figure, the company trades around 3.5x trailing P/E. This is would be the figure excluding the one-time Goodwill Impairment and if this is a realistic way to value the stock, one would consider the current price significantly depressed.
As a value stock, this stock fits the mold with a low PE of 7.39. The forward P/E ratio is simply price divided by estimated earnings. It is a preferred valuation measure by many investors.
A simple measure of value is the Price to Book ratio, which measures market value of a stock versus the accounting value of the company's equity. The company currently has $27.51 per share in book value. Deep value investors may have an interest in the low PB ratio of 0.42, which is unusually low. However, after subtracting goodwill ($81.2 million) and intangibles ($137.5 million), this metric may not provide the same level of comfort.
A Price to Earnings Growth (NYSE:PEG) ratio can also be used to determine value, especially in stocks that are growing. This measures the valuation of the stock through the P/E against the expected growth rate of earnings. With a PEG ratio of just 0.54, this stock could be a bargain.
Insider Buying Indicates Value
Insider buying is generally an indication that a company's performance is improving. So, generally speaking, when five officers and directors purchase 18,000 shares, like in November 2015, you have to take note. This buying may be evidence of good things coming. These shares were purchased around $11.50 per share. There is generally only one reason investors buy a stock and that is to make money.
A stock's trading range can move with the market. Looking at the technical data can help you understand the current trend. The 52-week low on this stock is $8.80 and it is trading about 31.02% above that level, with the current price of $11.53. This stock's recent 52-week high is $52 and the current price level is 77.82% off of that level.
Currently, the stock also trades above the 20 day moving average ($10.95), but below the 50 day moving average ($11.85), and 200 day moving average ($23.10). This is an indication that oversold conditions in the market have had a dramatic impact on this stock's price. When stocks trade at the top or bottom of a 52 week range, it could indicate that there is momentum in the price, or that the stock is under/overvalued.
Given a possible rebound in the energy sector in late 2016, there is a possibility that the Goodwill Impairment charge was premature. However, ignoring this and focusing on the Forward P/E ratio, we might form a price target. At a 10x multiple, the stock may be worth $15.50. Keep in mind, this is still significantly below the current book value per share. Investors should use caution buying in this environment and may consider averaging into a position over time.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.