Price to Earning ratio has typically been a good screen to find excellent potential investments. A low PE ratio can signify an undervalued stock, but typically more due diligence is required to confirm the valuation. For example, significant one time events (such as asset sales) will distort the PE ratio if one only looks at the current year or the last 12 months of earnings. It is also worth noting that sometimes a reasonable or high PE ratio may hide an excellent value stock, for example, when the earnings are temporarily depressed and the market underestimates the future earnings rebound (in our view, of course).
Low P/E Screen Parameters
For this particular screen, I looked for stocks selling at a PE ratio below 10, Return on Equity > 25%, PEG multiple below 1, and Debt to Equity ratio of below 15%. This makes the screen a little more conservative and gives us a manageable list of potential investments.
|Stock Ticker||Company||Industry||PE Ratio||Market Cap ($MM)|
|CLCT||Collector’s Universe||Business Services||6.53||115.28|
|MSN||Emerson Radio||Audio & Video Equipment||3.19||65.38|
|HQGE||HQ Global Education||Schools||4.83||106.26|
|KGJI||Kingold Jewellery||Jewelry & Silverware||9.49||101.1|
|LORL||Loral Space & Communication||Communications Equipment||4.73||1.52B|
|MDF||Metropolitan Health Network||Healthcare Facilities||6.88||158.93|
|PPD||Prepaid Legal||Personal Services||8.86||643.94|
|SWTX||Southwall Technologies Inc||Constr. – Supplies & Fixtures||1.23||69.74|
|USMO||US Mobility||Communication Services||5.08||326|
*Please note that Incredimail (MAIL) is based out of Israel and therefore operates under laws of Israel, although with its NASDAQ listing it is required to be US GAAP compliant.
It was quite surprising to see the number of Chinese companies that turned up in this screen. Investing in Chinese businesses, of course requires more than just a company analysis, it also requires a level of trust in their accounting and their economic system. That is not in my circle of competence, hence I have not included them in this list. Technology dominates this list, specifically semiconductors and communication equipment, suggesting that the rebound in earnings is probably not yet full reflected in the prices. Or perhaps, investors are not yet confident of the economic conditions going forward.
I will post my further research and recommendations in the member’s area.
Disclaimer: As of this writing, the author does not own shares in any of the companies mentioned. This report does not imply any recommendation to buy or sell. Do your own research before making investment decisions.