Future Fuel’s Enticing Earnings

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by Debra Fiakas CFA

Who doesn’t like a bargain?  FutureFuel Corporation (FF:  NYSE) is trading near $13.15 per share, below nine times net earnings.  Yet, the enticing earnings multiple might be only part of the story.

The stock has gapped down in price twice in the last six months, trailing off after each leg down.  The stock now appears oversold.

Based in Missouri, FutureFuel produces biodiesel and biobased speciality chemical products.  In the twelve months ending June 2014, the company reported $396.9 million in sales, providing $53.5 million in net income or $1.52 per share.  The company converted 9% of sales to operating cash.   That might seem impressive, but what has investors in a funk is that sales are shrinking.  In the June 2014 quarter the company reported a weak $68.0 million in total sales, compared to $106.0 million in the same quarter in the prior year.

Thus FutureFuel probably is not the bargain that the low earnings multiple suggests.  A review of recent trading patterns suggests the stock has so much negative sentiment that it could trade as low as $5.00.

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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