Monday, November 22, 2010

Bargain hunting - Gladstone Capital (GLAD)

A friend asked me to take a look at Gladstone Capital (GLAD) the other day, so I added it to the site (you need to sign in to view it; registration is free). Gladstone is a small cap - not something we've covered so far, but happy to on request from a frequent user.

A few observations. GLAD is trading below its book value, currently at price to book (P/B) ratio of 0.96. They've been in this territory for a few quarters now, with the valuation dipping below half the book value at times:

A drop to P/B of 0.5 may present an opportunity for a Graham-style bargain basement investment. I have not researched the balance sheet, so do not know if there are any skeletons in the closet. From a longer term perspective, however, GLAD does not look appetizing - they are barely eking out earnings, with ROE and ROA numbers in the 5 to 8% territory.

Personally, I much prefer companies with strong earnings compounding, even at P/B of 2 or so - and there are quite a few of those around nowadays. If you know about GLAD and why they are valued below book, please comment!

Disclosure: no position.

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