Triple-S Management Corporation (GTS) is a stock with low liquidity and an average trading volume of around 40,000 shares a day. Stocks such as GTS with low liquidity allow for larger price swings, and offer more chances of becoming a mispriced security.
The most recent overreaction occurred due to the company's earnings release on Oct. 31, when the media reported that GTS missed EPS by 4 cents to 16 cents (depending on which article you read). The stock sold off by about 10% and is down by about 15% over the last two weeks, while its fundamentals have remained the same.
There is no other clear explanation for this sell-off except for the earnings announcement. Comparable companies such as Humana (HUM) and United Health (UNH) have been flat over the same time period. Shares of GTS sold off because investors saw the words "earnings miss," and the stock tanked as the stock is illiquid.
If you look at GTS's historical trading chart, you can see several other times over the last two years when the stock tanked due to overreactions (and quickly recovered).
This is an excellent entry point for the stock.
The company's fundamentals remain intact and future growth is still expected. There was no change to the fundamentals that would warrant a 15% drop in the share price. In the earnings announcement, GTS management reaffirmed FY 2012 guidance for EPS of $1.80 to $1.85 per share and said that Q3 earnings were in line with internal expectations. That's a FY 2012 P/E of 9. More importantly, the company is trading at a PEG of 0.68 vs. competitors that trade above 1.
GTS has a strong history of posting regular recurring robust net income, and there is no reason this shouldn't continue into the future. Analysts are projecting that EPS grows 12 cents in 2013 from $1.83 in FY 2012, to $2.05 in FY 2013. This equals an 11% earnings yield for 2013 based on the current stock price. This is a great return considering the risk profile of the company, its long history of positive cash flow generation, and the alternative investment yields currently in the market.
Analysts currently have an average price target at $22.00 a share. Similar to previous price sell-offs in GTS stock over the last two years due to overreactions, expect GTS to recover to the $19.50 to $21.00 area swiftly.
Disclaimer: As with all investing, there are risks involved with stock investing in stocks with low liquidity especially the likelihood of increased volatility. Do your own research and don't solely rely on articles like this one.
Disclosure: I am long GTS.