Stock valuations are complex and revealing. Two stocks, NetEnt AB (publ) (OM:NET B) and Radius Health, Inc. (NasdaqGM:RDUS) have been subjected to appraisal using an ERP5 investment strategy ranking. Hunting for undervalued companies is an analyst’s dream. Everything from price-to-book ratio, earnings yield, and ROIC are taken into consideration.
Technical Methods for NetEnt AB (publ) (OM:NET B)
Investors like to leave the tough stuff to researchers who tackle macro-economic factors along with specific company information. What is happening in the world economy affects ranking but it is equally valuable to look at internal data and conduct a Q.i evaluation. The rule of thumb is the lower the value, the more a stock is deemed undervalued.
The technical analysis of EBITDA yield determines profitability. It is a complicated formula involving taxes, interest, amortization and depreciation. The EBITDA yield for NetEnt AB (publ) (OM:NET B) is 0.100622. In addition, the earnings to price yield comes to 0.070297. Accurate financial performance is therefore identifiable. The earnings yield for return on investment for NetEnt AB (publ) (OM:NET B) is 0.074117. Going a step further, the earnings yield five-year average for the stock is 0.048152 and the free cash flow yield five-year average is 0.051911.
Ratios also come into play in the valuation process. The current ratio of NetEnt AB (publ) (OM:NET B) is 2.27. This figure tells investors whether a company can pay its short and long-term debt. If the ratio is high, it will likely experience difficulty managing working capital. A low ration, by contrast, says that trouble is brewing for short-term obligations.
Along other lines, NetEnt AB (publ) (OM:NET B) has a leverage ratio of 0.000000. This tells investors the degree of debt incurred to enhance corporate capital. It is not always a negative to need operations financing. Then there is the price-to-book ratio, which in the case of NetEnt AB (publ) (OM:NET B) stands at 8.589019. This ratio is key in determining whether a stock is under or overvalued by the market. A rate over one means an overvaluation.
A scoring system, known as the Piotroski F-Score (with a ranking of one to nine) reveals data of a company’s financial strength. It is another top determinant of a stock’s value. For NetEnt AB (publ) (OM:NET B), this score is six, obviously not at the top of the scale. It therefore indicates a mid-value, given that one is low.
Of further interest in the gross margin score that reflects company stability over eight years. The figure lies between one and one hundred (at the worst). The score of NetEnt AB (publ) (OM:NET B) is 12.00000. High scores are positive and desirable indicators for investors.
Portfolio performance is the purview of investment managers and good value is highly prized to generate profit. Bargains help boost performance but are hard to pinpoint. Neglected and unpopular stocks may yield good results as long as possibilities for long-term growth is detected along with stable current earnings.
Radius Health under the microscope
Finding undervalued candidates take considerable detailed analysis. The ERP5 rank is often used because it encompasses earnings yield, ROIC, price-to-book ratio and 5-year average ROIC. Looking at Radius Health, Inc. (NasdaqGM:RDUS), we see a figure of 17843. It is a quantifiable picture that speaks louder than emotional valuations based on investor assumptions. It varies with risk-taking attitudes.
Equity research is at its best when technical as it can filter out the emotions from the data. For example, the Q.i. value of Radius Health, Inc. is 84.00000. We now know if it is under or overvalued. Plus we have the EBITDA yield to assess profitability. The EBITDA Yield for Radius Health, Inc. is 0.231480.
Now on to the earnings-to-price yield of the stock, which clocks in at 0.253961. For Radius Health, Inc., the figure is 0.234779. Investors can learn the return on investment from this popular rating method. Furthermore, they can at the earnings yield five-year average, which is 0.151812, and the free cash flow yield five-year average of -0.122949. There is truth in numbers.
The historical stock price of a company is also a value tool of evaluation. At present, Radius Health, Inc. has a 10 month price index of 0.56951. There are other methods with different time parameters. Its 1- month price index is 0.54351, the 24-month is 0.45596, and the 36-month is 0.55734. You can go short term as well. With Radius Health, you get a 5-month price index of 0.99167, a 3-month of 1.11599, and a 1-month currently at 0.97194.
We move on to return on invested capital, or ROIC, another great indicator of value. The number for Radius Health, Inc. is -4.003119 while its ROIC quality ratio is 0.092597. This is the preferred measurement of profitability reflecting the return that an investment generates on invested capital.
Not of lesser interest is the price-to-book ratio of the company at 14.374269, based on dividing current share price by the book value per share. It tells stock buyers a lot about value along with price-to-cash ratio, which in the case or Radius Health is 4.257108. A look at the price-to-earnings ratio shows -3.937618.
The P/E ratio is one of the most common ratios used for figuring out whether a company is overvalued or undervalued, also known as the working capital ratio. Radius Health has a current ratio of 5.92 reflecting the relationship of its assets to its liabilities. We can tell if the company can handle its debt by dividing the current price share by the earnings per share.
Analytical tools should determine stock performance, but they are not foolproof. But when used to determine portfolio allocations, they can enhance the odds in the investor’s favor. Risks are always a factor and they vary. A high concentration of a certain industry may be unwise. Furthermore, timing of buying and selling requires a good reading of the big picture. Trading does not always pan out, but when the gains stack up, there is cause for celebration.
A version of this article first appeared at thestockvoice.com