Buying stocks with low valuations relative to growth levels is a good strategy that is fairly popular among investors, but often implemented using the PEG ratio, a metric that I do not feel is optimal.
Until recently, I have used the enterprise value to operating cash flow to growth (EV/OCF/G) metric, but a comment left on one of my recent articles has changed my preferred metric a bit. In the future I am planning to use enterprise free cash flow instead of operating cash flow in the ratio if I can put together enterprise free cash flow data, and if not, I'll use normal free cash flow as I have done here.
To find the stocks below, I started by screening for stocks that had a projected growth rate of over 10% to find medium to high growth companies. I then eliminated companies with return on investments of below 10% to avoid companies that have been mis-managed. My next step was to screen out companies with heavy debt burdens by requiring a total debt to equity ratio of less than 100%.
From the stocks that passed these criteria, I selected the five stocks with the lowest EV/FCF/G ratio to highlight below (click to enlarge images):
Myriad Genetics, Inc. (MYGN)
Myriad Genetics, Inc. is a molecular diagnostic company focused on developing and marketing novel predictive medicine, personalized medicine and prognostic medicine products. The molecular diagnostic products are designed to analyze genes and their mutations to assess an individual’s risk for developing disease later in life, determine a patient’s likelihood of responding to a particular drug, assess a patient’s risk of disease progression and disease recurrence, and measure a patient’s exposure to drug therapy to ensure optimal dosing and reduced drug toxicity (see full description).
|Projected Growth Rate (%)||28.94|
|Total Debt to Equity (%)||0.00|
United Therapeutics (UTHR)
United Therapeutics Corporation, incorporated on June 26, 1996, is a biotechnology company focused on the development and commercialization of products to address the medical needs of patients with chronic diseases (see full description).
|Projected Growth Rate (%)||69.96|
|Total Debt to Equity (%)||30.89|
Teradyne, Inc. (TER)
Teradyne, Inc. (Teradyne), incorporated on September 23, 1960, is a supplier of automatic test equipment. The Company designs, develops, manufactures and sells automatic test systems and solutions used to test complex electronics in the consumer electronics, automotive, computing, telecommunications, and aerospace and defense industries (see full description).
|Projected Growth Rate (%)||15.50|
|Total Debt to Equity (%)||13.60|
AmSurg Corp. (AMSG)
AmSurg Corp. is engaged in developing, acquiring and operating ambulatory surgery centers (ASCs) in partnership with physicians throughout the United States. An AmSurg surgery center is typically located adjacent to or in close proximity to the medical practices of the Company’s physician partners. Each of its surgery centers provides a range of surgical procedures (see full description).
|Projected Growth Rate (%)||11.71|
|Total Debt to Equity (%)||52.88|
GameStop Corp. (GME)
GameStop Corp. (GameStop) is a retailer of video game products and personal computer (PC) entertainment software. The Company sells new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise (see full description).
|Projected Growth Rate (%)||15.18|
|Total Debt to Equity (%)||8.98|