One of the cheapest stocks in our Small & Micro Cap Stock Screener is Juniper Pharmaceuticals Inc (NASDAQ:JNP).
Juniper Pharmaceuticals Inc (Juniper) is a women’s health therapeutic company focused on developing therapeutics that address unmet medical needs in women’s health. It offers technical services to the pharmaceutical and biotechnology industry.
A quick look at Juniper’s share price history over the past twelve months shows that the price is down 18%, but here’s why the company is undervalued.
(Source: Google Finance)
The following data is from the company’s latest financial statements, dated June 2017.
The company’s latest balance sheet shows that Juniper has $21 Million in total cash and cash equivalents. Further down the balance sheet we can see that the company has total debt of $4 Million. Therefore, Juniper has a net cash position of $17 Million (cash minus debt).
If we consider that Juniper currently has a market cap of $49 Million, when we subtract the net cash totaling $17 Million that equates to an Enterprise Value of $32 Million.
If we move over to the company’s latest income statements we can see that Juniper has $7 Million in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 4.25, or 4.25 times operating earnings. That places Juniper squarely in undervalued territory.
The Acquirer’s Multiple is defined as:
Enterprise Value/Operating Earnings*
*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
It’s also important to note that if we take a look at the company’s latest cash flow statements we can see that Juniper generated trailing twelve month operating cash flow of $11 Million and had $4 Million in Capex. That equates to $7 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 22%.
In terms of the company’s ROE. A quick calculation shows that the company had $39 Million in equity for the quarter ending March 2017 and $40 Million for the quarter ending June 2017. If we divide that number by two we get $39.5 Million of average equity. If we consider that the company has $8 Million (ttm) in net income, that equates to an annualized Return on Equity (ROE) for the quarter ending June 2017 of 20%.
Lastly, Juniper’s current revenues of $58 Million (ttm) are the highest in the past five years. The company’s net income of $8 Million (ttm) is also the highest in past five years with the exception of one year 2012 when net income was $10 million however, its important to remember that in 2012 the company’s free cash flow was just $3 Million compared to the $7 Million that we see today.
In terms of Juniper’s current valuation, the company is trading on a P/E of 5.8 compared to its 5Y average of 24.2**, a P/B of 1.2 compared to its 5Y average of 2.2**, and a P/S of 0.9 compared to its 5Y average of 2.4**. The company has a FCF/EV Yield of 22% (ttm) and an Acquirer’s Multiple of 4.25, or 4.25 times operating earnings. Juniper has an annualized Return on Equity (ROE) for the quarter ending June 2017 of 20% (ttm). All of which indicates that the company is undervalued.
** Morningstar
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