Introduction
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.
Screen Details
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
Stock | Company | P/E Ratio | P/B Ratio | P/S ratio | EPS 5 yr growth | Sales 5 yr growth |
|---|---|---|---|---|---|---|
AEL | American Equity Inv | 4.5 | 0.5 | 0.8 | 26.8% | 15.9% |
ANAT | American National Group | 6.6 | 0.5 | 0.8 | 22.3% | 4.6% |
FBC | Flagstar Bancorp | 4.0 | 1.0 | 1.4 | 32.3% | 20.3% |
HTH | Hilltop Holdings | 6.4 | 1.2 | 1.4 | 34.4% | 8.0% |
PFSI | PennyMac Financial Services | 2.9 | 1.2 | 1.2 | 60.2% | 38.0% |
QRTEA | Qurate Retail | 4.2 | 1.4 | 0.4 | 19.0% | 8.1% |
TPH | Tri Pointe Homes | 9.5 | 1.3 | 0.9 | 13.1% | 6.7% |
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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.
Ending Note
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.