Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

GLPW NWHM Are Problem Children, But Valuations Are Compelling


It is rightly said that someone's loss in the stock market is someone else's gain as catastrophic developments eventually get transformed into opportunities. Investors can take a look at Global Power Equipment Group Inc. (NASDAQ: GLPW) which has slumped to a fresh 52-week low after posting first quarter results that left the market underwhelmed. Somewhat similar is the case with New Home Company Inc. (NYSE: NWHM) which also has solid fundamentals but has been marked down by a brokerage firm.

Global Power Equipment Group makes power generation equipment and offers maintenance services to its clients in energy and power infrastructure industries. Its client list is impressive with heavyweight names such as General Electric (NYSE: GE) and Siemens Energy.

The stock has corrected from $20 per share levels in April to $15 in late May after it reported lower revenues for the quarter ended March 2014. Top line dropped to $104.8 million from $116.7 million in the same period last year. Investors took this as a trend reversal to the healthy growth the company maintained in the last three years. However, the correction has brought the stock to attractive levels where it is available at its book value. This metric is particularly important for Global Power Equipment which has a debt equity ratio of just 0.1. There are other positives with the stock including the small but regular dividend it pays quarterly.

When seen from a cost standpoint, the latest quarter was nothing short of a big achievement as the company trimmed almost all variable costs which resulted in slimmer losses. As such, this could be a good time to enter this potential outperformer in making.

New Home Company, a California based homebuilder, too has seen a correction from its 52-week high level of $16 per share in March to more modest $12.7 per share now. This was on account of a downgrade by Citigroup (NYSE: C) which put a 'neutral' recommendation on the stock. This 20 percent correction appears excessive punishment for a crime that may never have been committed in the first place.

The company's latest results, announced after the downgrade, give a clue to the massive turnaround underway at the homebuilder. The company reported a 41 percent growth in top line to $25.5 million while its bottom line swelled eight times to $1.6 million. Adjusted EBITDA margin improved to 3.8 percent during the quarter while gross margins also saw improvement. The company has a strong balance sheet with a debt equity ratio which declined to just 0.19 at the end of the quarter. This looks too good to be true, but the latest decline has lowered the stock's valuations to a forward price earnings multiple of just 5.5.

Stocks: GLPW, NWHM, GE