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One way to help determine whether a firm is undervalued is whether it is generating a lot of levered free cash flow relative to its market cap. Firms generating more cash relative to their market cap stand a greater chance of being undervalued.

Levered free cash flow is the cash flow available after paying interest on outstanding debt.

We ran a screen on stocks priced between $1 and $5 for those that have high levered free cash flow relative to market cap, as well as those that are undervalued relative to earnings growth (with PEG < 1).

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.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.


(Click to enlarge)

Given the cash they’ve generated, do you think these stocks are being undervalued by the market? Use this list as a starting-off point for your own analysis.

List sorted by levered free cash flow as a percent of market cap.

1. ReneSola Ltd. (NYSE:SOL): Semiconductor Industry. Market cap of $414.27M. Price at $4.68. PEG at 0.12. TTM levered free cash flow at $156.96M, which represents 38.66% of the company's market cap. This is a risky stock that is significantly more volatile than the overall market (beta = 2.94). The stock is currently stuck in a downtrend, trading 7.16% below its SMA20, 28.57% below its SMA50, and 50.4% below its SMA200. It's been a rough couple of days for the stock, losing 8.62% over the last week.

2. Pulse Electronics Corporation (OTCPK:PULS): Diversified Electronics Industry. Market cap of $183.17M. Price at $4.41. PEG at 0.8. TTM levered free cash flow at $61.74M, which represents 34.09% of the company's market cap. The stock is a short squeeze candidate, with a short float at 9.54% (equivalent to 23.19 days of average volume). The stock has gained 37.23% over the last year.

3. Mitel Networks Corp. (NASDAQ:MITL): Communication Equipment Industry. Market cap of $214.32M. Price at $4.03. PEG at 0.18. TTM levered free cash flow at $49.54M, which represents 23.11% of the company's market cap. The stock is currently stuck in a downtrend, trading 9.87% below its SMA20, 17.54% below its SMA50, and 27.2% below its SMA200. It's been a rough couple of days for the stock, losing 7.99% over the last week.

4. Metropolitan Health Networks Inc. (MDF): Health Care Plans Industry. Market cap of $191.12M. Price at $4.57. PEG at 0.74. TTM levered free cash flow at $15.48M, which represents 8.25% of the company's market cap. The stock has gained 22.69% over the last year.

5. Westell Technologies Inc. (NASDAQ:WSTL): Communication Equipment Industry. Market cap of $247.62M. Price at $3.58. PEG at 0.3. TTM levered free cash flow at $13.76M, which represents 5.62% of the company's market cap. The stock has gained 127.39% over the last year.

*Levered free cash flow data sourced from Yahoo! Finance, all other data sourced from Finviz.

Source: 5 Stocks Under $5 Undervalued by Earnings Growth and Levered Free Cash Flow