Building up an investment case requires looking at a stock holistically. Today I’ve chosen to put the spotlight on ERM Power Limited (ASX:EPW) due to its excellent fundamentals in more than one area. EPW is a financially-sound company with a a great track record of performance, trading at a discount. Below is a brief commentary on these key aspects. For those interested in digger a bit deeper into my commentary, take a look at the report on ERM Power here.

Undervalued with excellent balance sheet

EPW delivered a triple-digit bottom-line expansion over the past couple of years, with its most recent earnings level surpassing its average level over the last five years. Not only did EPW outperformed its past performance, its growth also exceeded the Electric Utilities industry expansion, which generated a 2.01% earnings growth. This is an optimistic signal for the future. EPW’s ability to maintain an adequate level of cash to meet upcoming liabilities is a good sign for its financial health. This suggests prudent control over cash and cost by management, which is a key determinant of the company’s health. EPW seems to have put its debt to good use, generating operating cash levels of 0.56x total debt in the most recent year. This is also a good indication as to whether debt is properly covered by the company’s cash flows.

EPW’s share price is trading at below its true value, meaning that the market sentiment for the stock is currently bearish. According to my intrinsic value of the stock, which is driven by analyst consensus forecast of EPW’s earnings, investors now have the opportunity to buy into the stock to reap capital gains. Also, relative to the rest of its peers with similar levels of earnings, EPW’s share price is trading below the group’s average. This further reaffirms that EPW is potentially undervalued.

Next Steps:

For ERM Power, I’ve put together three important factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for EPW’s future growth? Take a look at our free research report of analyst consensus for EPW’s outlook.

2. Dividend Income vs Capital Gains: Does EPW return gains to shareholders through reinvesting in itself and growing earnings, or redistribute a decent portion of earnings as dividends? Our historical dividend yield visualization quickly tells you what your can expect from EPW as an investment.

3. Other Attractive Alternatives : Are there other well-rounded stocks you could be holding instead of EPW? Explore our interactive list of stocks with large potential to get an idea of what else is out there you may be missing!

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.