If you want to have a higher chance to discover bargains, one way to do so is to look for equities that are trading at a discount to their intrinsic value estimate as calculated from the projected free cash flow (FCF) valuation model.
Unlike the discounted cash flow or discounted earnings valuation models, the projected FCF model allows investors to estimate the value of those companies whose record of revenue and earnings is not regular and may also incorporate losses in some quarters. The projected FCF uses normalized free cash flow and book value.
The following three stocks seem to be underestimated by the market according to the projected FCF model. They also hold positive recommendation ratings among sell-side analysts on Wall Street.
Atlanticus Holdings Corp
The first company that qualifies is Atlanticus Holdings Corp (ATLC, Financial), an Atlanta, Georgia-based provider of credit services to individuals and businesses in the U.S.
The stock was trading at around $50.79 per share at close on Tuesday, which represents a discount to the projected free cash flow of $66.22 per share. The share price has risen by 461.32% over the past year for a market capitalization of $827.20 million and a 52-week range of $8.15 to $51.62.
GuruFocus has assigned a score of 2 out of 10 for the company's financial strength rating and of 5 out of 10 for its profitability rating.
As of August, the stock has one recommendation rating of buy with a target price of $63 per share on Wall Street.
Regional Management Corp
The second stock that makes the cut is Regional Management Corp (RM, Financial), a Greer, South Carolina-based credit services company that provides various installment loan products mainly to customers who have limited access to consumer credit.
The stock traded at around $56.53 per share at close on Tuesday, which represents a discount to the projected free cash flow of $196.38 per share. The price has risen by 212.83% over the past year for a market capitalization of $581.58 million and a 52-week range of $15.87 to $60.45.
GuruFocus has assigned a score of 2 out of 10 for the company's financial strength rating and of 6 out of 10 for its profitability rating.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $54.33 per share.
Atlantic Capital Bancshares Inc
The third stock that makes the cut is Atlantic Capital Bancshares Inc (ACBI, Financial), an Atlanta, Georgia-based regional bank offering various banking products and services to U.S. individuals and businesses.
The stock traded at around $24.79 per share at close on Tuesday, representing a discount to the projected free cash flow of $54.95. The share price has climbed 126.06% over the past year for a market capitalization of $506.96 million and a 52-week range of $10.48 to $28.93.
GuruFocus has assigned a score of 3 out of 10 for the company's financial strength rating and of 4 out of 10 for its profitability rating.
On Wall Street, the stock has a median recommendation rating of overweight and an average price target of $28.50 per share.
Disclosure: I have no positions in any securities mentioned in this article.
