Do not pass up a penny stock just because it is a penny stock. There are solid earnings here and it is priced well below market averages. If this stock were to continue and then meet up with the industry average for EPS ratio, the stock would double in price. That is a significant opportunity for the savvy investor.
Terra Firma Capital Corp. (TFCCF) is a Canadian real estate finance company. The company specializes in bridge loans for developers and home-owners doing construction. The company’s market capitalization is $35 million and the stock is trading at $0.489 per share, making this effectively a penny stock.
Being a penny stock should not dissuade your thinking with this company. First, look at what you earn with this penny stock via EPS. The company is earning a decent $0.05 per share. That is a cool 10-times earnings. A stock priced so inexpensively, you could virtually corner the market. And, you would get a high-yielding stock such as this.
There are a few aspects of this that I wanted to point out, the first being the industry average. The industry and sector, respectively, are trading at 28 and 17 EPS ratio. This makes this company’s 10-times earnings almost half of where it should be if the stock were to be trading at the average.
Another point to show is that the return on assets and return on investments ratios are much higher than the industry, 9 and 7, respectively. The industry and sector have been lagging these indicators. That is interesting because it basically shows that the company is doing better at what it does in its niche. However, the company’s stock does not price appropriately when you compare it to the industry. That is an opportunity.
If the company is going to perform highly, and especially highly versus its counterparts, then it is a strong candidate for putting into your portfolio. What is even more compelling is the EPS ratio that allows for this company to increase in value substantially over the next several months and years.
But, there is more to this. First, the economy itself is continually expanding. Interest rates are likely to continue to move higher and higher. Because of that, the rates that TFCCF can charge its lenders will be higher. This equates to more profits. Further, the company will resell its loans in packaged bundles, a business model that is regularly employed in the industry. The company then services the loans while keeping a small differential in between. That is pure profit from what it charges to what it pays the purchasers of its bundled loans. Those rates are going to be increasing and that is going to mean more profits for the company.
As those rates continue to move higher via the central banks and the lending rates of financial institutions, the ratcheting of interest rates, there will be continued profit centers as the bank has more room to work with its differential.
Given that this stock is a penny stock it is easy to look past the opportunity. When considering this, keep this in mind, a 10-year government bond is currently yielding 2.50%, whereas purchasing this stock is akin to earning a 10% return with its EPS ratio. Plus, earnings have been increasing and, as shown the economic landscape is going to be improving as such that there will be continued profits.
My first inclination it to place this stock into my portfolio just until the EPS ratio breaks the industry average. However, I am also inclined to add this stock into my portfolio simply because there will ultimately be a tremendous amount of growth. If the stock were to trade at the industry average the price would double. Then, from there, any growth from interest rate increases will only add to the revenues, which will add to the overall stock price.
Given those variables, an investment in TFCCF is a smart move. Given the stock is so inexpensive, it also makes sense to hold a significant position size.