Northern Technologies (NASDAQ: NTIC), a materials company with a market capitalization of $129 million, saw its share price increase by 28.0% over the last month. As a small-cap stock, hardly covered by analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. However, could shares still be trading at a relatively cheap price? Let’s take a look at NTIC’s outlook and value based on its most recent financial data to see if there are any catalysts for a price change.
What Is NTIC Worth?
NTIC appears to be overvalued by -13.9% at the moment, based on 12 separate valuation models. The stock is currently trading at $28.35 on the market compared to our average intrinsic value of $24.42. This means that the opportunity to buy NTIC at a good price has disappeared.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$23.77||-16.2%|
|5-yr DCF Revenue Exit||$25.58||-9.8%|
|Peer Revenue Multiples||$25.05||-11.7%|
|10-yr DCF EBITDA Exit||$24.18||-14.7%|
|5-yr DCF EBITDA Exit||$26.21||-7.5%|
|Peer EBITDA Multiples||$24.06||-15.1%|
|10-yr DCF Growth Exit||$19.98||-29.5%|
|5-yr DCF Growth Exit||$19.80||-30.2%|
|Peer P/E Multiples||$29.90||5.5%|
|Dividend Discount Model||$18.66||-34.2%|
|Dividend Discount Model (multi-stage)||$33.68||18.8%|
|Earnings Power Value||$22.14||-21.9%|
Click on any of the analyses above to view the latest model with real-time data.
However, will there be another opportunity to buy low in the future? Given that NTIC’s stock is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) could mean the price can sink lower, giving investors another chance to buy in the future. This is based on its beta of 1.41, which is a good indicator for share price volatility.
How Much Growth Will NTIC Generate?
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 the company’s future expectations.
source: finbox.io data explorer
With NTIC’s relatively muted top-line growth of 5.4% expected over the next five years on average, growth doesn’t seem like a key catalyst for a buying decision, at least in the short to medium-term.
While many investors tend to categorize stocks as either value or growth plays, the most successful investors view growth in conjunction with a company’s value. Take legendary investor Peter Lynch for example, who is widely known for popularizing the term growth at a reasonable price (GARP).
GARP is a strategy that combines aspects of both growth and value investing techniques by finding high growth companies that don’t trade at overly high valuations. In the application of this strategy, Lynch achieved 29% annualized returns as the manager of Fidelity’s Magellan Fund from 1977 to 1990. Needless to say the importance of analyzing a company’s fair value in addition to its growth prospects.
Unfortunately for shareholders, NTIC’s future growth is relatively low and it appears the stock is now trading above its intrinsic value. Therefore, it may be a good time to begin reducing your position in the company. However, there are also other factors to consider that could explain the current overvaluation.
However, if you have not done so already, I highly recommend you complete your research on NTIC by taking a look at the following:
Valuation Metrics: what is NTIC’s price to book ratio and how does it compare to its peers? Analyze Price / Book here.
Risk Metrics: what is NTIC’s CapEx coverage? This is the amount a company outlays for capital assets for each dollar it generates from those investments. View the company’s CapEx coverage here.
Efficiency Metrics: inventory turnover is a ratio that measures the number of times a company’s inventory is sold and replaced over the year. View NTIC’s inventory turnover here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.