Low-coverage stock brings high return

Well it didn't take very long for me to find a good example to illustrate what I suggested in my last blog "The relative value of stock analysis". Just a few hours after posting, I made a very nice gain because of my analysis of a "low-coverage" stock, ADF Group (ticker: DRX on the Toronto Stock Exchange). After reading everything I could find about this company, I came to the conclusion that I had just found a highly undervalued stock. This company isn't often in the media and isn't covered by any of the major research firms. It seems to be covered mainly by three analysts of smaller firms. Today, ADF Group announced fantastic second quarter results and the stock climbed 12.31%.

Here's some things I liked about it after finishing my research:
-Fast growing order backlog
-Backlog gives revenue visibility for many quarters to come
-Operates in a niche
-Qualified workforce
-Using most recent technology
-Management is financially involved through stock ownership
-High profile contracts which help the company's reputation (Freedom Towers, Encana building, Miami International Airport, etc.)
-Lowering debt brings flinancial flexibility in case of slowdown
-Room to grow since about 50% of capacity is used
-Market punished non-residential construction even if it's situation isn't like residential construction.
-Opportunities to grab new contracts in Western Canada and all over North America (infrastructure needs).
-Currently in the final stages of negociation for big contract(s).

I then found my own price target with 4 methods: DCF, multiples, RIM and EVA. My results indicated that ADF Group was mispriced and I bought some shares.

Today, my well hidden secret was revealed to more market participants through a news release and a conference call. Those participants rewarded my research efforts by pushing the stock price up. By performing what I call value-adding analysis, I was able to find an underpriced company with a great future and have an impressive 12.31% gain once the market discovered my hidden gem.

Stock Market Investment Partner encourages you to take a look at ADF Group and any potentially attractive low-coverage stocks and decide by yourself if they are worth the investment.