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One interesting way to find potentially undervalued stocks is to compare its increase in EPS estimates with its increase in price. To create this list, we applied the theoretical observation about P/E ratios to stocks valued under $5.

If the Price / Earnings Per Share ratio is equal to some constant K, it follows that there should be a linear relationship between Price and Earnings per Share. In other words:

If P/E = K
then P = (K)(E)

If there is a mismatch between growth rates in projected earnings per share values and price, a mis-pricing may have occurred, presenting an opportunity to value investors.

Yes, this approach isn't 100% accurate. There is no reason to believe that P/E should be equal to a constant at all times (that is, after all, a simplifying assumption to build a screen). But the goal here is to give you a starting point in finding potentially undervalued stocks.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.


All of the stocks mentioned below are for companies with a market cap over $200M and stock value below $5. We narrowed down our selection to those with positive changes in EPS Estimates over the last 30 days.

List sorted by difference between change in EPS and change in price.

1. Doral Financial Corp. (NYSE:DRL):
Mortgage Investment Industry. Market cap of $252.03M. Over the last 30 days, the current year EPS estimates have increased by 150% (from $0.02 to $0.05), while price increased by 35.14% (from $1.48 to $2). This is a risky stock that is significantly more volatile than the overall market (beta = 2.27). The stock has had a couple of great days, gaining 8.79% over the last week.

2. Vonage Holdings Corporation (NYSE:VG): Diversified Communication Services Industry. Market cap of $1.05B. Over the last 30 days, the current year EPS estimates have increased by 34.62% (from $0.26 to $0.35), while price decreased by 9.4% (from $5.21 to $4.72). The stock has gained 132.18% over the last year.

3. Popular Inc. (NASDAQ:BPOP): Foreign Regional Banks Industry. Market cap of $2.83B. Over the last 30 days, the current year EPS estimates have increased by 18.18% (from $0.11 to $0.13), while price decreased by 13.75% (from $3.2 to $2.76). The stock has performed poorly over the last month, losing 13.75%.

4. Alphatec Holdings, Inc. (NASDAQ:ATEC): Medical Instruments & Supplies Industry. Market cap of $330.67M. Over the last 30 days, the current year EPS estimates have increased by 50% (from $0.02 to $0.03), while price increased by 22.37% (from $2.95 to $3.61). Exhibiting strong upside momentum--currently trading 6.08% above its SMA20, 16.17% above its SMA50, and 40.71% above its SMA200. The stock has had a good month, gaining 17.03%.

5. Warren Resources Inc. (NASDAQ:WRES): Oil & Gas Equipment & Services Industry. Market cap of $255.68M. Over the last 30 days, the current year EPS estimates have increased by 9.52% (from $0.21 to $0.23), while price decreased by 16.01% (from $4.31 to $3.62). This is a risky stock that is significantly more volatile than the overall market (beta = 2.65).

6. NorthStar Realty Finance Corp. (NYSE:NRF): REIT. Market cap of $322.53M. Over the last 30 days, the current year EPS estimates have increased by 2.8% (from $1.07 to $1.1), while price decreased by 17.76% (from $5.18 to $4.26). The stock is a short squeeze candidate, with a short float at 6.97% (equivalent to 5.17 days of average volume). The stock has performed poorly over the last month, losing 17.23%.

7. EnergySolutions, Inc (NYSE:ES):
Waste Management Industry. Market cap of $440.30M. Over the last 30 days, the current year EPS estimates have increased by 8.33% (from $0.24 to $0.26), while price decreased by 11.38% (from $5.45 to $4.83). The stock has lost 19.48% over the last year.

8. THQ Inc. (THQI):
Multimedia & Graphics Software Industry. Market cap of $274.20M. Over the last 30 days, the current year EPS estimates have increased by 14.29% (from $0.28 to $0.32), while price decreased by 1.21% (from $4.12 to $4.07). This is a risky stock that is significantly more volatile than the overall market (beta = 2.22). The stock is a short squeeze candidate, with a short float at 14.07% (equivalent to 6.39 days of average volume). The stock has lost 31.23% over the last year.

9. X-Rite, Incorporated (NASDAQ:XRIT): Photographic Equipment & Supplies Industry. Market cap of $396.18M. Over the last 30 days, the current year EPS estimates have increased by 10.71% (from $0.28 to $0.31), while price decreased by 4.26% (from $4.69 to $4.49). The stock has gained 38.86% over the last year.

10. Phoenix Companies Inc. (NYSE:PNX): Life Insurance Industry. Market cap of $279.12M. Over the last 30 days, the current year EPS estimates have increased by 2.27% (from $0.44 to $0.45), while price decreased by 10.98% (from $2.64 to $2.35). The stock is a short squeeze candidate, with a short float at 5.59% (equivalent to 10.84 days of average volume). The stock has had a couple of great days, gaining 14.29% over the last week.

11. DHT Holdings, Inc. (NYSE:DHT): Shipping Industry. Market cap of $245.31M. Over the last 30 days, the current year EPS estimates have increased by 5.71% (from $0.35 to $0.37), while price decreased by -7.09% (from $4.23 to $3.93). The stock has gained 3.42% over the last year.

12. Westell Technologies Inc. (NASDAQ:WSTL):
Communication Equipment Industry. Market cap of $240.42M. Over the last 30 days, the current year EPS estimates have increased by 10.53% (from $0.19 to $0.21), while price decreased by 1.94% (from $3.61 to $3.54). The stock has gained 117.39% over the last year.

13. LIN TV Corp. (TVL): Broadcasting Industry. Market cap of $253.97M. Over the last 30 days, the current year EPS estimates have increased by 2.44% (from $0.41 to $0.42), while price decreased by 9.15% (from $5.03 to $4.57). This is a risky stock that is significantly more volatile than the overall market (beta = 3.02). The stock has had a couple of great days, gaining 5.5% over the last week.

14. First Busey Corporation (NASDAQ:BUSE): Midwest Banks Industry. Market cap of $433.87M. Over the last 30 days, the current year EPS estimates have increased by 6.45% (from $0.31 to $0.33), while price decreased by 4.98% (from $5.22 to $4.96). The stock is a short squeeze candidate, with a short float at 6.58% (equivalent to 21.94 days of average volume). The stock has gained 11.83% over the last year.

15. GFI Group Inc. (NYSE:GFIG): Investment Brokerage Industry. Market cap of $531.79M. Over the last 30 days, the current year EPS estimates have increased by 3.23% (from $0.31 to $0.32), while price decreased by 8.16% (from $4.78 to $4.39). The stock has lost 27.88% over the last year.

16. Mizuho Financial Group, Inc. (NYSE:MFG):
Money Center Banks Industry. Market cap of $23.77B. Over the last 30 days, the current year EPS estimates have increased by 1.72% (from $0.58 to $0.59), while price decreased by 6.36% (from $3.3 to $3.09). The stock has lost 14.72% over the last year.

17. Continucare Corp. (NYSE:CNU):
Specialized Health Services Industry. Market cap of $287.99M. Over the last 30 days, the current year EPS estimates have increased by 2.44% (from $0.41 to $0.42), while price decreased by 5.38% (from $5.02 to $4.75). The stock has had a couple of great days, gaining 10.72% over the last week.

18. The McClatchy Company (NYSE:MNI):
Publishing Industry. Market cap of $243.44M. Over the last 30 days, the current year EPS estimates have increased by 8.11% (from $0.37 to $0.4), while price increased by 0.35% (from $2.83 to $2.84). This is a risky stock that is significantly more volatile than the overall market (beta = 3.17). The stock is a short squeeze candidate, with a short float at 41.44% (equivalent to 22.17 days of average volume). The stock has had a couple of great days, gaining 12.6% over the last week.

* All 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.

Source: 18 Stocks Under $5 That Still Have to Price in Analyst Upgrades