Euroseas Ltd (NASDAQ:ESEA), a marine company based in Greece, received a lot of attention from a substantial price increase on the NasdaqCM in the over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at ESEA’s outlook and value based on the most recent financial data to see if the opportunity still exists. View our latest analysis for Euroseas
What is ESEA worth?According to my relative valuation model, ESEA seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that ESEA’s ratio of 0.5x is trading slightly below its industry peers’ ratio of 0.5x, which means if you buy ESEA today, you’d be paying a relatively fair price for it. And if you believe ESEA should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that ESEA’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of ESEA look like?Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at ESEA future expectations. In ESEA’s case, its revenues over the next few years are expected to grow by 43.96%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? ESEA’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at ESEA? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on ESEA, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for ESEA, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Euroseas. You can find everything you need to know about ESEA in the latest infographic research report. If you are no longer interested in Euroseas, you can use our free platform to see my list of over 50 other stocks with a high growth potential.