I am bearish on SuRo Capital (SSSS) stock.
General bearish sentiment has proven particularly detrimental to growth stocks, and the value of portfolios invested in these types of companies.
The Russell 3000 Growth Index, a measure of the performance of growth stocks in the United States, is down 17% year-to-date. SuRo Capital is down around 36% year-to-date.
After this harsh downturn, the stock now has a 14-day Relative Strength Index (RSI) of 39.5, meaning there is progress towards oversold levels with room for current headwinds to push the stock further down. When the RSI is above 70, the stock is generally considered overbought, while below 30 is considered oversold.
Commenting on the company’s first-quarter 2022 results, Mark Klein, chairman and CEO of SuRo Capital, said the market is mispricing his company’s portfolio.
As long as strong headwinds persist, the current market disruption has little chance of an end.
About SuRo Capital
SuRo Capital operates as a publicly traded investment fund focused on investing in high-growth, venture capital-backed private companies.
SuRo Capital’s headquarters are in New York.
Q1 2022 Results
During the first quarter of 2022, the market declined amid high volatility, but the company increased its Net Assets Value (NAV) by $0.66 per common share, beating analysts’ median forecast of a decline of $1.03 per share.
However, this result represented a deterioration from the prior year as the upside change in NAV was much higher at $5.27.
High Profitability, but this Could Downgrade
The 12-month return on common equity is 14.58% versus the industry median of 12.73%, while the 12-month return on total assets is 12.95% versus the sector median of 1.27%.
The company’s profitability is rated high, higher than most of its peers, but it could drop a few points in the coming months. The bearish sentiment currently dominating financial markets appears to have the characteristics of sustained resistance that can seriously erode asset values.
The presence of significant and seemingly long-lasting negative factors such as the war in Ukraine, elevated inflation and the risk of stagflation due to current monetary policies increase the likelihood of recurring market volatility.
Such turbulence does not bode well for growth stocks and SuRo Capital shares.
Balance Sheet
As of March 31, total investments were approximately $280.8 million, up 10.9% from the last quarter of 2021.
Of this total amount, 90% is attributable to non-controlling interests, and the remaining 10% to controlling interests.
Cash on hand was nearly $173 million, down 12.8% from the last quarter of 2021, driven by investments, share repurchases, and dividend payments.
Total debt was approximately $73.1 million, and consisted of a 6% corporate bond due December 2026.
In addition, the company’s total net assets were worth approximately $12.22 per share, which was above $11.72 per share as of December 31, 2021, but below $18.01 per share as of March 31, 2021.
Wall Street’s Take
In the past three months, three Wall Street analysts have issued a 12-month price target for SSSS. The company has a Strong Buy consensus rating based on three Buys, zero Holds, and zero Sell ratings.
The average SuRo Capital price target is $13.67, implying 69.4% upside potential.
Valuation
SuRo Capital has a market cap of $248 million, and a 52-week range of $7.80 to $16.40.
The stock has a price/earnings ratio of 3.6, a price/book ratio of 0.69, a price/sales ratio of 5.27, a price/cash flow ratio of 1.20, and a price/free-cash-flow ratio of -6.30.
Dividend
The company currently pays quarterly dividends, with the most recent payment on April 15 being $0.11 per common share.
For the past 12 months, including the most recent payment, the company has paid out $7.61 per common share for a dividend yield of 94.76%.
Conclusion
The market may be undervaluing the company, which could justify a purchase.
However, since the market will continue to fall as long as there are these strong headwinds, why not wait for lower valuations?
Furthermore, growth stocks now have little chance of bouncing back anytime soon.
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