SVLF – Initiation of Buy Recommendation

By: ispeculatornew
Date posted: 12.13.2006 (12:00 am) | Write a Comment  (0 Comments)

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SVL – Silverleaf Resorts (American Stock Exchange) (Closing Price – $4.20)

Silver Leaf Resorts is the epitome of an underfollowed and undervalued stock. I first came across SVL a little over a year ago by using a stock screener. It had good earnings and was trading at half its book value. The stock was a no brainer at the time but unfortunately I had no money to invest in it. Silverleaf promptly shot up from about a dollar fifty to over four dollars. I wish I had bought some then but it is still a bargain now.

SVL’s current forecast for 2006 is for net income of 0.53 to 0.56 per diluted share. If you use the lower end of their earnings guidance and today’s closing price of 4.2 you get a PE ratio of 8 (4.2/0.53 = 8). They are guiding towards earnings growth of 16% next year, which I think is conservative. If you use their earnings growth as a measure of what the PE should be (16) this values the company at $8.2. While the PE ratio is a subjective valuation measure, I believe SVL is currently undervalued.

So what are some drawbacks to buying Silverleaf? Well it trades on the AMEX (American Stock Exchange) which doesn’t have a lot of high profile stocks. This may prevent the stock from getting the recognition than it deserves. However, the longer this stock goes unrecognized the more opportunity you have to buy cheap shares.

Also, the CEO and another affiliate sold a bunch of already issued shares for $3.50 on May 25, 2006. This seems to have hurt the stock price a little bit short term but I don’t expect this to last very long. In fact, the share price is currently trending back up. I would start to accumulate at the current price.

Disclosure: I currently own shares of SVL.

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