3 Insider Favorites With Falling P/E Ratios

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 |  Includes: ESI, LINC, PSS
by: Kapitall

When a company’s P/E ratio falls over time, while earnings steadily rise, it could be a sign that price has not proportionately “caught up” with earnings. In other words, the market may be undervaluing its worth...

We ran a screen for potentially undervalued companies exhibiting this behavior, with trailing twelve month price/earnings (TTM P/E) (excluding extraordinary items) at least 20% lower than the 3-year average. These companies also had at least 10% growth in diluted EPS (excluding extraordinary items) year-over-year for the past two years.

From these stocks, we searched for those that saw significant insider buying over the last 6 months.

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.

Do you think these stocks have been treading in undervalued territory? Use this list as a starting-off point for your own analysis.

List sorted by insider purchases.

1. ITT Educational Services Inc. (NYSE:ESI): Education & Training Services Industry. Market cap of $2.31B. Net insider purchases over the last 6 months at 374,000 shares, or 1.68% of the company's 22.29M share float. TTM P/E at 7.07 vs. 3-year average at 11.67. Last year diluted EPS at $11.17 vs. two years prior EPS at $5.17. The stock is a short squeeze candidate, with a short float at 26.72% (equivalent to 10.03 days of average volume). The stock has had a good month, gaining 13.28%.

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2. Lincoln Educational Services Corporation (NASDAQ:LINC): Education & Training Services Industry. Market cap of $324.70M. Net insider purchases over the last 6 months at 291,384 shares, or 1.38% of the company's 21.19M share float. TTM P/E at 5.34 vs. 3-year average at 10.59. Last year diluted EPS at $2.79 vs. two years prior EPS at $0.78. The stock is a short squeeze candidate, with a short float at 5.17% (equivalent to 5.73 days of average volume). It's been a rough couple of days for the stock, losing 7.23% over the last week.

3. Collective Brands, Inc. (NYSE:PSS): Apparel Stores Industry. Market cap of $855.54M. Net insider purchases over the last 6 months at 20,139 shares, or 0.04% of the company's 56.30M share float. TTM P/E at 10.26 vs. 3-year average at 31.48. Last year diluted EPS at $1.75 vs. two years prior EPS at -$1.08. The stock is a short squeeze candidate, with a short float at 15.66% (equivalent to 7.46 days of average volume). The stock has performed poorly over the last month, losing 27.15%.

*P/E and EPS data sourced from Screener.co, insider data sourced from Yahoo! Finance, 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.