Low multiples such as earnings multiples or book multiples generally represent good values. While this may not be always true, it is true enough that they make for a great screen to shortlist stocks for further review. In this screen we go after the traditional trifecta of low price/book, low price/earnings and low price/sales. At the same time, we are look for some history of sales and earnings growth.
This gives us a good shortlist of stocks from which we can further narrow down our focus by quick review of other fundamental data.
This screen looks for mid cap stocks between $2 Billion and $5 Billion in market capitalization with low multiples:
- P/E ratio between 2 and 10
- P/B ratio < 1.5
- P/S ratio < 2
- 5 year EPS growth rate > 2%
- 5 year Sales growth rate > 2%
The stocks are limited to those listed on US exchanges.
The Screen Results
EPS 5 yr growth
Sales 5 yr growth
American Equity Inv
American National Group
PennyMac Financial Services
Tri Pointe Homes
Notes and Observations
Most of the stocks in this list are financial stocks (insurance, mortgage, etc). They do exhibit inadequate financial strength. TPH on the other hand is worthy of a 2nd look as the company appears to be solid and at a good valuation and will likely catch a tailwind as economy opens up and home building activity increases.
The ugly truth about cheap stocks is that they may be on a shaky ground financially. This is apparent from this screen. Still, we have one new idea to carry forward from this screen.