Is Northern Technologies (USA Stocks:NTIC) volatility expected to decline even more is February?
 | By Nico Santiago | Macroaxis Story |
Buy low, sell high - a mantra often echoed in the world of investing. With Northern Technologies' stock currently trading on the NASDAQ, the question arises: is now the prime opportunity to invest? The specialty chemicals company, categorized under basic materials, has shown significant volatility recently. Despite a possible downside price of $8.6, the analyst's highest estimated target price stands at a promising $19. The daily balance of power at 0.7358 and a period momentum indicator of 0.39 suggest a strong buy consensus among analysts. With the fiscal year ending in August, the current market valuation of $12.3 could potentially rise to the real value of $14.41, offering a potential upside of $13.8. Approximately 22% of stocks are less volatile than Northern Technologies, and it is projected that 99% of all traded equity instruments will yield higher returns than the company over a 60-day investment horizon. As many traditional traders are steering clear of the chemicals sector, it would be prudent to delve deeper into Northern Technologies and attempt to comprehend its current volatility patterns. We will explore whether the expected returns on Northern Technologies will justify its present volatility. Despite Northern Technologies' low volatility, it may still influence the stock's value as we currently deem it to be undervalued. Based on our analysis, the real value is nearing $14.41 per share.
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Reviewed by Gabriel Shpitalnik
Northern Technologies currently holds $6.79 million in liabilities, with a Debt to Equity (D/E) ratio of 0.07. This suggests that Northern Technologies may not be leveraging borrowing to its full potential. The company's current ratio stands at 2.69, indicating that it has sufficient liquidity to meet its financial obligations as they come due.
Debt can be beneficial for Northern Technologies until it encounters difficulties in repayment, either through new capital or free cash flow. If the company fails to meet its legal obligations to repay debt, shareholders could potentially lose their entire investment. However, a more common scenario is when companies like Northern Technologies issue additional shares at discounted prices, thereby diluting the value of existing shares.
In this context, debt can be an excellent tool for Northern Technologies to invest in high-return growth opportunities. When evaluating Northern Technologies' use of debt, it's important to consider it in conjunction with cash and equity.
Top Findings
From a volatility viewpoint, Northern Technologies stock presents a mixed bag for potential investors. With a mean deviation of 1.69 and a standard deviation of 2.51, the stock exhibits a higher level of volatility compared to some other stocks in the Specialty Chemicals industry. This means the stock's price can change dramatically in a very short time, making it possible for investors to experience significant gains or losses. However, the company's negative Jensen Alpha of -0.02 indicates underperformance when adjusting for the risk taken, suggesting that the stock may not be the best choice for risk-averse investors. In conclusion, while the current market conditions may provide an opportunity for high-risk investors, those seeking stability might want to look elsewhere. Volatility is a rate at which the price of Northern Technologies or any other equity instrument increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the annualized returns over a given period of time and shows the range to which the price of Northern Technologies may increase or decrease. In other words, similar to Northern's beta indicator, it measures the risk of Northern Technologies and helps estimate the fluctuations that may happen in a short period of time. So if prices of Northern Technologies fluctuate rapidly in a short time span, it is termed to have high volatility, and if it swings slowly in a more extended period, it is understood to have low volatility. Please read more on our technical analysis page.
How important is Northern Technologies's Liquidity
Northern Technologies financial leverage refers to using borrowed capital as a funding source to finance Northern Technologies ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Northern Technologies financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Northern Technologies' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Northern Technologies' financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Northern Technologies's total debt and its cash.
Northern Technologies Gross Profit
Northern Technologies Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Northern Technologies previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Northern Technologies Gross Profit growth over the last 10 years. Please check Northern Technologies' gross profit and other fundamental indicators for more details.
Northern Technologies Volatility Drivers
Northern Technologies unsystematic risk is unique to Northern Technologies and usually not directly affected by the market or economic environment. An example of unsystematic risk is the possibility of poor earnings or a layoff due to coronavirus. One may mitigate nonsystematic risk by buying different securities in the same industry or by buying in different sectors. For example, if you have a position in Northern Technologies you can also buy Innospec. You can also mitigate this risk by investing in the materials sector as well as in companies having nothing to do with it. This type of risk is also called diversifiable risk and can be understood from analyzing Northern Technologies important indicators over time. Here we run a correlation analysis between relevant fundamental ratios over at least ten year period to find a relationship in the way they react to changes in Northern Technologies income statement and balance sheet. Here are more details about Northern volatility.Click cells to compare fundamentals
Breaking down the case for Northern Technologies
The entity reported the previous year's revenue of 86.36 M. Net Income was 4.24 M with profit before overhead, payroll, taxes, and interest of 23.07 M. "In investing, what is comfortable is rarely profitable." This adage rings true when considering the potential of Northern Technologies stock. Despite the firm's volatility, with a Beta of 0.73 and a Mean Deviation of 1.69, it maintains a strong financial position, evidenced by a current ratio of 2.74X and a working capital of $22.95M. The company's gross profit stands at $23.07M, and with a market capitalization of $112.28M, it's a relatively small but potentially rewarding player in the Specialty Chemicals industry. The potential upside of 3.07 further underscores the potential rewards of this investment. However, investors should be mindful of the 1.00% probability of bankruptcy and the potential risk inherent in its daily balance of power of 0.7358. As with any investment, the opportunity comes with risk, but for those willing to bear it, Northern Technologies may offer a prime opportunity.
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