Valuation Scorecard: Stock Rating F-Lowest (4/3/24)-FutureFuel Corp (FF).

Over the next 6 years, FutureFuel shares will need to reach $14 to achieve average annual stock market performance of 9.0%. FutureFuel’s stock price will need to reach $16 by 2028 to achieve upper quartile performance. What is the market’s view of FutureFuel’s future operating performance as reflected in the current price of $8?

Executive Summary

• Key FutureFuel characteristics: above average financial strength, high profitability, stability, and very low expected growth. A big positive influence on FutureFuel’s valuation is its superior Profitability.
• Very low valuation, lagging shareholder returns. Current valuation levels are very low relative to the FutureFuel Peer Group. Recent market returns have substantially underperformed the FutureFuel Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, FutureFuel shares should reach a level of $7 by 2028 — an 0.8% per year total shareholder return. A 2028 stock price of $14 would reflect median performance and a price of $16 would be required to reach upper quartile performance.
• FutureFuel’s past growth is average. Historical growth has been average relative to the FutureFuel Peer Group and forecasted growth is relatively very low. Revenue Growth has been superior. EPS Growth, Equity Growth, and Asset Growth have lagged. FutureFuel’s historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity.
• Profitability has been FutureFuel’s biggest valuation strength. Asset Turnover, and Pretax ROA are group leading. These factors have strengthened market perceptions of FutureFuel. The company has below average cash and will have to work to generate attractive investment opportunities and improve valuation.
• FutureFuel’s risk profile is neutral. Overall variability has been only average with only average revenue variability, very high E.P.S. variability, and very low stock price volatility. Financial Strength is relatively high and earnings’ expectations are unavailable. The debt/capital ratio has risen very significantly.

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