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Is Enterprise Group a Bargain Trading at Just a Third of its Book Value?

Enterprise Group Inc (TSX:E) operates in the energy, utility, and transportation industries offering construction services and specialty equipment rentals. At a market cap of less than $17 million, Enterprise is a nano cap stock and currently trades at just $0.32 per share. The company is based in Alberta and with many of its customers in oil and gas it is not a surprise that Enterprise has seen its stock price and revenue decline significantly since 2014, when it was trading at over $3 per share.

The company saw strong growth in Q2

In Enterprise’s most recent quarter it posted over $7 million in sales, which is an increase of over 41% from a year ago. The improved sales translated into a bottom line that was also improved with a loss of $1.59 million compared to a loss of $2.4 million a year ago. If Enterprise can build on this strong quarter then profits will be sure to follow and the stock price will definitely recover.

A discounted stock price might not last for long

The company’s book value of $0.92 suggests the stock is trading at a heavy discount at just a third of its stated value. However, a quick look at the company’s history suggests this is not new territory for the stock.

The above chart shows the company’s price-to-book value multiples over the past few years (specifically year-ends) and you can see the multiples have been slowly increasing back up after steep declines in 2014 and 2015.
With the Alberta economy picking up a bit of steam Enterprise could see that translate into better top and bottom line figures. If that happens then the stock won’t stay at these low multiples for long and could see a significant improvement in its share price.

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Technical analysis

Enterprise’s stock has been stuck in a range within the past 52 weeks, from a low of $0.25 to a high of $0.37; the price has not had a lot of momentum in one direction or another.

Below is a look at the price movement for the past 12 months:

Although the stock is in a range you can see some progression overall as the lows have been getting higher while the highs have also been increasing. This suggests an overall upward trend in the price and suggests there might be a potential for the share price to increase back up to its previous high of $0.37, or even higher. The share price looks to have seen some support at around the $0.32 mark for the past few months, so to pick it up at this price might not be a bad idea.

Take away for investors

If Enterprise can put together another strong quarter investors could be rewarded with strong returns. When the company released its Q2 results the share price jumped over 12% within a few days and investors could see similar returns if Q3 does well.

However, the stock is not without risk and investors should always be careful with stocks trading under $1 since even a small fluctuation in price could have a significant impact on your investment.