3 Undervalued Stocks To Consider

Includes: JMBA, SOL, SPPI
by: StockMatusow

In this article, we will take a look at 3 stocks I consider to be undervalued that could bring nice long terms gains.

Spectrum Pharma (NASDAQ:SPPI)

  • PPS: $13.93
  • 52 week range: 6.42 - 16.00
  • Avg volume: 1,610,120
  • Market Cap: 794.14 Million.

As mentioned in my prior article about Spectrum, the company has an impressive FDA approved drugs and phase clinical pipeline. Spectrum has 2 drugs already approved by The FDA:

Fusilev (Levoleucovorin)

  • FDA Approved on April 29, 2011 for use in patients with Advanced Metastatic Colorectal Cancer;
  • FDA Approved on March 7, 2008 for high-dose methotrexate rescue therapy in osteosarcoma.

Zevalin (ibritumomab tiuxetan)

And one drug in late stage clinical:


  • A novel HDAC inhibitor in late stage clinical development for Peripheral T-cell Lymphoma and other solid tumors, including carcinoma of unknown primary.

Let's take a look at the fundamentals:

Fiscal Year
Fiscal Year Ends: Dec 31
Most Recent Quarter (mrq): Sep 30, 2011
Profit Margin : 25.69%
Operating Margin : 30.83%
Management Effectiveness
Return on Assets : 16.49%
Return on Equity : 37.51%
Income Statement
Revenue : 173.93M
Revenue Per Share : 3.35
Qtrly Revenue Growth (yoy): 204.90%
Gross Profit : 56.67M
EBITDA 6: 58.80M
Net Income Avl to Common : 44.68M
Diluted EPS : 0.80
Qtrly Earnings Growth (yoy): N/A
Balance Sheet
Total Cash (mrq): 148.90M
Total Cash Per Share (mrq): 2.61
Total Debt (mrq): 17.00K
Total Debt/Equity (mrq): 0.01
Current Ratio (mrq): 2.75
Book Value Per Share (mrq): 3.05
Cash Flow Statement
Operating Cash Flow : 42.60M
Levered Free Cash Flow : 39.60M

The above numbers clearly shows a well managed company with a solid balance sheet.

Valuation Measures
Market Cap (intraday): 804.98M
Enterprise Value (Feb 8, 2012): 653.16M
Trailing P/E (ttm, intraday): 17.70
Forward P/E (fye Dec 31, 2012): 13.57
PEG Ratio (5 yr expected): N/A
Price/Sales : 4.61
Price/Book (mrq): 4.61
Enterprise Value/Revenue : 3.76
Enterprise Value/EBITDA : 11.11

Share Statistics
Avg Vol (3 month): 1,610,120
Avg Vol (10 day): 1,538,560
Shares Outstanding: 57.05M
Float: 49.40M
% Held by Insiders: 12.72%
% Held by Institutions: 40.70%
Shares Short (as of Jan 13, 2012): 12.11M
Short Ratio (as of Jan 13, 2012): 7.50
Short % of Float (as of Jan 13, 2012): 24.10%
Shares Short (prior month): 8.67M

Spectrum is very undervalued. Because of their pipeline and lower market cap, Spectrum is a very attractive acquisition target for big pharma like Bristol-Myers Squibb (NYSE:BMY), Pfizer (NYSE:PFE), Merk (NYSE:MRK), Teva (NYSE:TEVA), Eli Lilly (NYSE:LLY), and Abbott Laboratories (NYSE:ABT).

Final thoughts on Spectrum:

The company is grossly undervalued, especially when compared to its peers, most of who do not make money and burn a lot of cash. With 2 drugs already approved and on the market, one late stage clinical drug, and several earlier stage drugs, some of which are certainly to receive orphan drug designation, you might want to consider Spectrum for your portfolio.

Jamba Juice (NASDAQ:JMBA)

  • PPS: $1.77
  • 52 week range: 1.21 - 2.55
  • Avg volume: 409,552
  • Market Cap: 119.43 Million

Jamba Juice operates as a restaurant retailer of beverage and food products. As of January 3, 2012, it had 750 locations consisting of 307 company-owned and operated stores, and 443 franchise-operated stores in the United States, as well as had 19 international stores. The company was founded in 1990 and is headquartered in Emeryville, California.

Jamba deals primarily in the health and wellness market, which is approximately $50 billion. Starbucks (NASDAQ:SBUX) recently bought Evolution Fresh to create a larger presence in this market. If Starbucks sees an opportunity in this market, then we can be sure the same opportunity is present for Jamba. JMBA only has stores in 26 states and growing. It is focused on expanding their domestic-store base in the Northeast and Southeast.

Let's take a look at Jamba fundamentals:

Valuation Measures
Market Cap (intraday): 119.29M
Enterprise Value (Feb 8, 2012): 91.92M
Trailing P/E (ttm, intraday): N/A
Forward P/E (fye Dec 28, 2012): 177.80
PEG Ratio (5 yr expected): -0.80
Price/Sales : 0.52
Price/Book (mrq): 9.72
Enterprise Value/Revenue : 0.41
Enterprise Value/EBITDA : 8.62

The market cap of Jamba, when considering their growth prospects, seems undervalued to me. I think the market cap should be near 200 million.

Profit Margin : -4.76%
Operating Margin : -0.92%
Management Effectiveness
Return on Assets : -1.26%
Return on Equity : -30.39%
Income Statement
Revenue : 224.17M
Revenue Per Share : 3.44
Qtrly Revenue Growth (yoy): -13.60%
Gross Profit : 39.24M
EBITDA : 10.67M
Net Income Avl to Common : -13.49M
Diluted EPS : -0.21
Qtrly Earnings Growth (yoy): N/A
Balance Sheet
Total Cash (mrq): 24.82M
Total Cash Per Share (mrq): 0.37
Total Debt (mrq): 0.00
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 0.87
Book Value Per Share (mrq): 0.18
Cash Flow Statement
Operating Cash Flow : -3.73M
Levered Free Cash Flow: -2.36M

Jamba saw some negative growth in Q3 11, but I think this will turn around for them moving forward. The ROA/ROE needs to improve, needing better profit margins and/or a higher revenue stream. I think with Jamba looking to expand into under penetrated markets, this should change in the future.

Share Statistics
Avg Vol (3 month): 409,552
Avg Vol (10 day): 312,886
Shares Outstanding: 67.09M
Float: 66.45M
% Held by Insiders: 2.29%
% Held by Institutions: 27.80%
Shares Short (as of Jan 13, 2012): 2.35M
Short Ratio (as of Jan 13, 2012): 4.30
Short % of Float (as of Jan 13, 2012): 3.60%
Shares Short (prior month): 2.43M

The volume is decent and the float is manageable. I would like to see more insider ownership, as 2.3 percent is rather low.

Final thoughts on Jamba Juice:

At $1.77, Jamba is undervalued. They have solid growth prospects, and their brand name is catchy, which could resonate nicely with consumers. I estimate their market cap should be around 200 million, so my target pps on Jamba is about $3.00 a share. We could see a much higher stock price if Jamba can execute correctly on their growth opportunity.

ReneSola (NYSE:SOL)

  • PPS: $2.90
  • 52 week range: 1.45 - 13.25
  • Avg volume: 1,498,680
  • Market Cap: 204 Million

ReneSola Ltd, together with its subsidiaries, engages in the manufacture and sale of solar wafers and solar power products. It offers virgin polysilicons, monocrystalline and multicrystalline solar wafers, and photovoltaic cells and modules. The company also provides cell and module processing services. Its products are used in a range of residential, commercial, industrial, and other solar power generation systems. The company sells its solar wafers primarily to solar cell and module manufacturers. It principally operates in Mainland China, Singapore, Taiwan, Hong Kong, Korea, India, Australia, Germany, Italy, Spain, Belgium, France, the Czech Republic, and the United States. The company was founded in 2003 and is based in Jiashan, the People’s Republic of China.

I remarked in my article about Chinese stocks offering huge gain potential, that ReneSola selling at $2.35 was a travesty. Current data out of Europe is showing that the solar market grew 18% in 2011 and hopes are that the growth continues in 2012. For the first quarter, Solarbuzz is predicting 10% growth in demand in Europe.

This is better news for the entire Solar sector, as these stocks took a beating in the last 2 quarters of 2011, although their growth was explosive in the first 2. In Europe, the solar industry lost some government subsidization from forced cut backs because of the on-going Eur-Union issues. This put additional pressure on shares of solar companies to begin 2012. In the fourth quarter 2011, demand picked up drastically, and production is racing to keep up with it.

This translates to demand for polysilicon, cells, and even modules if top-tier suppliers are running out of inventory on such strong demand. Supply low, demand high equates to stronger revenue and profit margins for the entire solar industry.

Because ReneSola is heavily subsidized by the Chinese government, it is in a better position to serve emerging Asian markets in my opinion. These emerging markets are where a good deal of this new demand is coming from.

Financial Highlights
Fiscal Year
Fiscal Year Ends: Dec 31
Most Recent Quarter (mrq): Sep 30, 2011
Profit Margin: 8.28%
Operating Margin : 12.18%
Management Effectiveness
Return on Assets : 5.14%
Return on Equity : 17.14%
Income Statement
Revenue : 1.18B
Revenue Per Share : 13.64
Qtrly Revenue Growth (yoy): -47.30%
Gross Profit : 347.96M
EBITDA 6: 219.63M
Net Income Avl to Common : 98.07M
Diluted EPS : 1.03
Qtrly Earnings Growth (yoy): N/A
Balance Sheet
Total Cash (mrq): 408.12M
Total Cash Per Share (mrq): 4.70
Total Debt (mrq): 822.16M
Total Debt/Equity (mrq): 130.27
Current Ratio (mrq): 1.00
Book Value Per Share (mrq): 7.27
Cash Flow Statement
Operating Cash Flow : 69.24M
Levered Free Cash Flow: -31.67M

The negative quarterly growth rate was caused by a lot of subsidy lost and tariff issues in Europe. Expect this number to drastically improve in the next 10Q.

Avg Vol (3 month): 1,498,680
Avg Vol (10 day): 1,452,190
Shares Outstanding: 86.82M
Float: 60.54M
% Held by Insiders: N/A
% Held by Institutions: N/A
Shares Short (as of Jan 13, 2012): 4.65M
Short Ratio (as of Jan 13, 2012): 3.40
Short % of Float (as of Jan 13, 2012): N/A
Shares Short (prior month): 4.41M

Final thoughts on ReneSola:

Looking at the current increased demand on solar, and ReneSola's solid market position, I would expect at least a double of the current pps by years end.

Some other undervalued stocks to take a look at:

  • Antares Pharma (AIS)
  • Arena Pharma (NASDAQ:ARNA)
  • InteLGenx Technologs (OTCQX:IGXT)

Disclosure: I am long AIS.

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.