Later this week, the next issue of ValueWalk’s exclusive value-focused newsletter will be released, and it’s another jam-packed issue.
The issue contains a total of six value-stock ideas, all of which fly under the radar. One of the firms profiled has achieved a total annualized return for investors of 25% per annum since inception.
Vanguard’s move into PE may change the landscape forever
Below is a sneak peak of our interview with a top-performing hedge fund, Songbird Asset Management, and a stock that it believes is undervalued by 57%.
To find out which stock is being discussed, as well as the full interview when it is released, click here to signup for Hidden Value Stocks today.
Moving onto valuation, it looks as if this is cheap on a P/E basis. How have you approached valuation here?
One of the reasons we like [redacted] is the valuation. If you look at the stock on a variety of multiples, it is cheap relative to both the market and its historical ranges and undervalued from a DCF perspective. But we recognize that this is not the equivalent of the proverbial free lunch. The stock is currently cheap for a reason. A big overhang on the company is its ability to hold its margins if their products do not change, or they cannot enter new markets or new industries...Since the lead time with their customers, the automobile OEMs is very long, we expect rough patches until the next wave of product offerings. But if you look at the history of the company, it has gone through these lulls between innovation and then recovers, not crashes. At $23 per share the stock is currently trading at a low 13x forward earnings, which we think is a bargain for a self-funding company with steady cash flow, high returns on capital, a pristine balance sheet and a management team returning cash to shareholders in a friendly manner.
What's your bull thesis for the stock if everything goes to plan?
If all went well with [redacted] and they can successfully roll out some of their new products and applications, by the end of 2019 we expect revenue growth to be at the high end of management’s guidance of 10%. Gross margins would likely hold at the current 38% and making conservative estimates for operating expenses, and we think the company could earn around $1.80 per share. Then applying a reasonable multiple of 20x results in a $37 stock or 57% upside from the current price of $23.
To find out which company is being discussed, sign up to Hidden Value Stocks today before the next issue is published and all is revealed at the end of this week!