One way to search for undervalued stocks is by finding abnormally profitable companies that have not yet seemed to price in their firm’s excess returns.
We ran a screen for companies trading at steep discounts to mean analyst target price (used as a proxy for fair value). From that universe, we found those that were more profitable than their industry peers on three profitability measures: Trailing Twelve Months (TTM) gross, operating, and pretax margin.
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Although target price is known to suffer from an upward bias, whenever a stock is trading at a steep discount from its target price it may indicate that it is undervalued.
Do you think these stocks fully priced in their companies’ profitability? Use this list as a starting-off point for your own analysis.
List sorted by discount from target price.
1. DryShips, Inc. (DRYS): Shipping Industry. Market cap of $1.45B. Target price at $6.13 vs. current price at $3.84 (implies a discount of 37.36%). Gross margin (TTM) at 73.41% vs. industry avg. of 61.85%. Operating margin (TTM) at 40.49% vs. industry avg. of 34.42%. Pretax margin (TTM) at 27.24% vs. industry avg. of 17.28%. This is a risky stock that is significantly more volatile than the overall market (beta = 3.34).
2. Marvell Technology Group Ltd. (MRVL): Semiconductor Industry. Market cap of $9.14B. Target price at $21.30 vs. current price at $14.23 (implies a discount of 33.19%). Gross margin (TTM) at 62.02% vs. industry avg. of 58.87%. Operating margin (TTM) at 25.27% vs. industry avg. of 25.19%. Pretax margin (TTM) at 25.21% vs. industry avg. of 24.81%. PEG ratio at 0.71, and P/FCF ratio at 8.46. The stock has lost 19.11% over the last year.
3. Cameco Corp. (CCJ): Industrial Metals & Minerals Industry. Market cap of $10.82B. Target price at $40.04 vs. current price at $26.85 (implies a discount of 32.94%). Gross margin (TTM) at 45.25% vs. industry avg. of 33.36%. Operating margin (TTM) at 20.97% vs. industry avg. of 16.02%. Pretax margin (TTM) at 21.93% vs. industry avg. of 15.71%. The stock is currently stuck in a downtrend, trading 5.94% below its SMA20, 9.69% below its SMA50, and 18.49% below its SMA200. The stock has gained 17.79% over the last year.
4. STR Holdings, Inc. (STRI): Rubber & Plastics Industry. Market cap of $653.37M. Target price at $22.94 vs. current price at $15.68 (implies a discount of 31.65%). Gross margin (TTM) at 45.01% vs. industry avg. of 36.11%. Operating margin (TTM) at 23.48% vs. industry avg. of 15.36%. Pretax margin (TTM) at 20.49% vs. industry avg. of 14.42%. The stock is a short squeeze candidate, with a short float at 21.5% (equivalent to 12.73 days of average volume). The stock has lost 19.65% over the last year.
5. VimpelCom Ltd. (VIP): Wireless Communications Industry. Market cap of $18.31B. Target price at $20.30 vs. current price at $13.91 (implies a discount of 31.48%). Gross margin (TTM) at 71.70% vs. industry avg. of 59.29%. Operating margin (TTM) at 27.13% vs. industry avg. of 18.38%. Pretax margin (TTM) at 22.13% vs. industry avg. of 11.28%. The stock might be undervalued at current levels, with a PEG ratio at 0.66, and P/FCF ratio at 13.72. The stock has lost 3.5% over the last year.
6. OYO Geospace Corp. (OYOG): Scientific & Technical Instruments Industry. Market cap of $553.95M. Target price at $128.00 vs. current price at $88.48 (implies a discount of 30.88%). Gross margin (TTM) at 46.35% vs. industry avg. of 35.02%. Operating margin (TTM) at 24.18% vs. industry avg. of 17.85%. Pretax margin (TTM) at 24.19% vs. industry avg. of 15.42%. The stock has gained 100.98% over the last year.
7. Enersis S.A. (ENI): Foreign Utilities Industry. Market cap of $14.25B. Target price at $30.02 vs. current price at $21.65 (implies a discount of 27.88%). Gross margin (TTM) at 32.93% vs. industry avg. of 27.46%. Operating margin (TTM) at 26.38% vs. industry avg. of 19.06%. Pretax margin (TTM) at 21.28% vs. industry avg. of 14.24%. The stock has gained 22.79% over the last year.
8. Great Lakes Dredge & Dock Corporation (GLDD): Heavy Construction Industry. Market cap of $375.21M. Target price at $8.75 vs. current price at $6.35 (implies a discount of 27.43%). Gross margin (TTM) at 22.68% vs. industry avg. of 12.13%. Operating margin (TTM) at 9.49% vs. industry avg. of 5.22%. Pretax margin (TTM) at 6.28% vs. industry avg. of 4.31%. The stock is a short squeeze candidate, with a short float at 5.45% (equivalent to 6.31 days of average volume).
9. Sinclair Broadcast Group Inc. (SBGI): Broadcasting Industry. Market cap of $845.93M. Target price at $14.17 vs. current price at $10.36 (implies a discount of 26.89%). Gross margin (TTM) at 62.97% vs. industry avg. of 43.46%. Operating margin (TTM) at 32.10% vs. industry avg. of 16.93%. Pretax margin (TTM) at 15.52% vs. industry avg. of 12.80%. The stock is a short squeeze candidate, with a short float at 7.52% (equivalent to 6.77 days of average volume). The stock has gained 74.17% over the last year.
10. Grand Canyon Education, Inc. (LOPE): Education & Training Services Industry. Market cap of $587.22M. Target price at $17.40 vs. current price at $12.81 (implies a discount of 26.38%). Gross margin (TTM) at 64.59% vs. industry avg. of 52.74%. Operating margin (TTM) at 20.73% vs. industry avg. of 19.86%. Pretax margin (TTM) at 18.24% vs. industry avg. of 16.10%. The stock is a short squeeze candidate, with a short float at 6.86% (equivalent to 5.97 days of average volume).
11. Mobile Telesystems OJSC (MBT): Wireless Communications Industry. Market cap of $18.82B. Target price at $26.68 vs. current price at $19.76 (implies a discount of 25.94%). Gross margin (TTM) at 71.82% vs. industry avg. of 59.29%. Operating margin (TTM) at 25.35% vs. industry avg. of 18.38%. Pretax margin (TTM) at 18.29% vs. industry avg. of 11.28%. The stock has gained 6.57% over the last year.
12. Gannett Co., Inc. (GCI): Publishing Industry. Market cap of $3.52B. Target price at $19.56 vs. current price at $14.54 (implies a discount of 25.66%). Gross margin (TTM) at 45.24% vs. industry avg. of 43.46%. Operating margin (TTM) at 19.36% vs. industry avg. of 16.93%. Pretax margin (TTM) at 15.01% vs. industry avg. of 12.80%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.47). The stock is also a short squeeze candidate, with a short float at 11.84% (equivalent to 8.05 days of average volume).
13. Apple Inc. (AAPL): Personal Computers Industry. Market cap of $314.91B. Target price at $448.78 vs. current price at $339.22 (implies a discount of 24.41%). Gross margin (TTM) at 40.66% vs. industry avg. of 40.40%. Operating margin (TTM) at 29.02% vs. industry avg. of 20.66%. Pretax margin (TTM) at 29.29% vs. industry avg. of 20.27%. PEG ratio at 0.79, and P/FCF ratio at 13.62. The stock has gained 43.22% over the last year.
14. Southwest Airlines Co. (LUV): Regional Airlines Industry. Market cap of $9.82B. Target price at $16.21 vs. current price at $12.33 (implies a discount of 23.94%). Gross margin (TTM) at 25.16% vs. industry avg. of 22.09%. Operating margin (TTM) at 8.48% vs. industry avg. of 7.46%. Pretax margin (TTM) at 5.93% vs. industry avg. of 4.45%. The stock has gained 6.44% over the last year.
15. SanDisk Corp. (SNDK): Semiconductor Industry. Market cap of $11.08B. Target price at $60.82 vs. current price at $46.76 (implies a discount of 23.12%). Gross margin (TTM) at 49.63% vs. industry avg. of 40.40%. Operating margin (TTM) at 30.58% vs. industry avg. of 20.66%. Pretax margin (TTM) at 29.12% vs. industry avg. of 20.27%. The stock might be undervalued at current levels, with a PEG ratio at 0.7, and P/FCF ratio at 7.94. The stock has gained 17.2% over the last year.
16. USANA Health Sciences Inc. (USNA): Drug Related Products Industry. Market cap of $472.03M. Target price at $38.00 vs. current price at $29.67 (implies a discount of 21.92%). Gross margin (TTM) at 81.90% vs. industry avg. of 69.31%. Operating margin (TTM) at 13.46% vs. industry avg. of 12.48%. Pretax margin (TTM) at 13.16% vs. industry avg. of 9.27%. The stock is a short squeeze candidate, with a short float at 9.28% (equivalent to 6.99 days of average volume).
17. Guess? Inc. (GES): Apparel Stores Industry. Market cap of $4.02B. Target price at $53.00 vs. current price at $41.49 (implies a discount of 21.72%). Gross margin (TTM) at 43.95% vs. industry avg. of 37.98%. Operating margin (TTM) at 12.45% vs. industry avg. of 9.66%. Pretax margin (TTM) at 17.76% vs. industry avg. of 9.10%. The stock has had a good month, gaining 13.28%.
18. Atlas Air Worldwide Holdings Inc. (AAWW): Air Services Industry. Market cap of $1.69B. Target price at $81.44 vs. current price at $63.82 (implies a discount of 21.64%). Gross margin (TTM) at 25.16% vs. industry avg. of 17.93%. Operating margin (TTM) at 15.76% vs. industry avg. of 9.78%. Pretax margin (TTM) at 14.62% vs. industry avg. of 9.44%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.41). The stock has gained 37.37% over the last year.
19. Monro Muffler Brake Inc. (MNRO): Auto Parts Industry. Market cap of $973.07M. Target price at $38.80 vs. current price at $31.18 (implies a discount of 19.64%). Gross margin (TTM) at 42.87% vs. industry avg. of 37.98%. Operating margin (TTM) at 12.43% vs. industry avg. of 9.66%. Pretax margin (TTM) at 11.61% vs. industry avg. of 9.10%. The stock is a short squeeze candidate, with a short float at 13.82% (equivalent to 11.49 days of average volume). The stock has gained 33.63% over the last year.
*Profitability data sourced from Fidelity, target price and all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
