Question for the equities wizards out there, explain this.

P

PlusMinus

I'd like for someone to explain why when this market has experienced such a ridiculous run up over the past year that stocks that are supposedly very fundamentally sound remain so undervalued. This particular stock, SUSQ, has seen almost no action on the upside after falling to a low of the 4's. It now trades at 5.61.

Why? Is it a victim of being a bank, and it's being shorted by the hedge funds as part of a sector bet? Or is there something else here at play?
 
Don't think it has a big short interest. It's a growth story and these small regional bank stocks have not done all that well. They have made no money this year at least relative to years past. Big writeoffs/provisions. That being said, a number of people think that these are the place to be. This stock normally trades at 2x tangible book. Its trading at .7x tb. It really has been overlooked. Stocks tend to trade off future earnings and there doesnt seem to be a lot of risk here at $5.50. Might have to wait for growth/economy to start kicking in though.

-hope that helps, good luck!
 
Quote from PlusMinus:
Why?......Or is there something else here at play?
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1) Smaller-caps tend to outperform at the end of bull markets, not at the beginning.
2) That bank doesn't engage in its own proprietary trading?
3) SInce its ticker symbol is "SUSQ", it's possible that traders nickname it "Susie Q", a stock that can't be taken seriously by anybody. :cool:
 
Quote from PlusMinus:

...stocks that are supposedly very fundamentally sound remain so undervalued. This particular stock, SUSQ, has seen almost no action on the upside...
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Very fundamentally sound? Are you kidding me?

It took me 14.49 milliseconds on yahoo finance to find out this company is in horrible shape.

- Their market cap is 484 million and their total debt is 2.5 billion.
- Their p/e is 44 right now. I'm impressed that they even have positive earnings.
- Negative free cash flow.
- Current assets cannot cover current liabilities.
- One of the ugliest balance sheets I've ever seen.

Small banks in better shape than this one are dropping like quails in hunting season.

I don't know how you can call SUSQ fundamentally sound or undervalued. Thats why there is no action on the upside
 
Quote from Jesus:

Very fundamentally sound? Are you kidding me?

It took me 14.49 milliseconds on yahoo finance to find out this company is in horrible shape.

- Their market cap is 484 million and their total debt is 2.5 billion.
- Their p/e is 44 right now. I'm impressed that they even have positive earnings.
- Negative free cash flow.
- Current assets cannot cover current liabilities.
- One of the ugliest balance sheets I've ever seen.

Small banks in better shape than this one are dropping like quails in hunting season.

I don't know how you can call SUSQ fundamentally sound or undervalued. Thats why there is no action on the upside
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I am new to equity analysis, but I think the valuation for financial services sector is very different than any other sectors.

Please correct me if I am wrong, but I believe bank deposits (from customers) are counted as liability. That may explain why the debt is so high, making the financial ratios so ugly.

The P/E ratio may not mean much, since the ratio is calculated based on historical earnings. It does not provide consistency as price reflects the present value of future earnings/cashflows (taken growth into consideration), and yet the earning in the P/E is a historical number.
 
I bumped into a guy who was very good with numbers. Sometime later, I asked him about a particular bank stock (I forget the name now), he said he used to work for a bank and he doesn't trade bank stocks.

Probably not much help but you answered your own question.

"Why? Is it a victim of being a bank..."
 
Quote from Pension_Admin:

I am new to equity analysis, but I think the valuation for financial services sector is very different than any other sectors.

Please correct me if I am wrong, but I believe bank deposits (from customers) are counted as liability. That may explain why the debt is so high, making the financial ratios so ugly.

The P/E ratio may not mean much, since the ratio is calculated based on historical earnings. It does not provide consistency as price reflects the present value of future earnings/cashflows (taken growth into consideration), and yet the earning in the P/E is a historical number.
More...


I agree about the p/e ratio, it is just one thing I might quickly check if I want to analyze a company in a few seconds, and I don't put too much faith in it.

As for the liabilities part, yes I know that bank deposits count as debt, but you overlooked the working capital part of my post. They don't have the current assets to meet their current liabilities minus deposits. All their liquid assets (cash short term, investments, etc...) Could not cover their accounts payable and short term debt. That is at the end of 2008, which is the period I was looking at in my first post. Looking at quarterly data, they can just barely cover their short term liabilities with their short term assets.

However, if a few depositors suddenly decide they want to withdraw their deposits, then the company is in big trouble. If depositors want to withdraw just 4 or 5 percent of the total deposited funds, then the bank will have to sell of assets, raise debt, sell common stock, or delay payment on short term debt (defaulting) to pay back the people withdrawing. None of those circumstances are positive.

looking away from the balance sheet to the cash flow statement tells you more. Their free cash flow jumps around like crazy, and in the last quarter it was negative 130 million. Free cash flow is usually a precursor to earnings.
 
Banks have always been risky. How it does business and how it use the money multiplier in their operation have shocked me when I first learned about it.

From what I have seen, the survival of a bank depend heavily on public perception of its stability. Even for a healthy bank that does not engage in derivative transactions, if the public has any doubt of it's stability and people start to withdraw money, then the bank will become bankrupted.

Most people may not know how a bank work and if you tell them that the bank does not have the money to cover all their deposits, which is the case for all banks, some people may start to make withdrawal.

The financial sector will recover eventually, but I believe it is going to take time for it to rebuild its reputation.
 
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