$SCVL - Small Cap Value with Growth Characteristics

With a mighty dividend that has paid investors well

20% of the stock of this small cap company has been shorted. A whole lot of investors expect the company to fail. The stock price has declined 31% in the last 1 year. For a contrarian, this may be enough to take a position against the market. As value investors, we look for more substance.

This stock hit two of our screens, here and here.

Let’s consider:

1. The company is profitable with a net margin of 6.1%

2. There is no debt. Debt/Equity is 0.6, primarily because of long term operating leases. The company is not overly leveraged

3. Current ratio is 3.9, there does not seem to be any liquidity problems at all

4. Expected EPS Growth next year is 15.1%

5. P/E ratio is 8.1 and P/B ratio is 1, considerably lower than when a stock starts to be considered as value

6. P/S ratio is 0.5

7. They pay a dividend yielding 2.4% which has grown an average of 26% a year for the last 5 years. The payout ratio is under 20%. The company recently announced a new $50 million share repurchase program (the company market cap is $600 million, so this is over 8% outstanding stock)

After the paywall, we will take a look at why the stock is down and why the investors are pessimistic today, but from a bird’s eye view, the stock seems to be very undervalued, the company seems to be financially strong, and they reward the shareholders well.

Whatever cloud that is hanging over the company, if it is temporary, a whole lot of investors will need to buy back in and close their short positions.

A perfect investment? Maybe. But before we make this call, let’s take a deep dive. We will also estimate the intrinsic value and the profit potential of the stock, should you buy it today.

Remember, this is not an investment advice. Read this entire report and then do your own analysis before you decide to buy or sell.

Let’s continue.