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When a company’s P/E ratio has fallen over time, while earnings steadily rise, it is a sign that price has not proportionately increased with earnings. In other words, the earnings may not be fully priced into the stock, and the stock may be undervalued.

We screened for stocks exhibiting this behavior as well as appearing undervalued to earnings growth, with PEG below 1. Among these stocks, we found those that are also highly profitable compared to their industry peers, beating them on gross, operating, and pretax margins.

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)

Do you think the market is undervaluing these stocks? Use this list as a starting-off point for your own analysis.

List sorted by market cap.

1. JPMorgan Chase & Co. (NYSE:JPM): Money Center Banks Industry. Market cap of $156.68B. PEG at 0.97. TTM P/E at 10.51 vs. 3-year average at 16.55. Last year diluted EPS at $3.96 vs. two years prior EPS at $2.24. TTM gross margin at 78.85% vs. industry gross margin at 59.26%. TTM operating margin at 45.41% vs. industry operating margin at 35.91%. TTM pretax margin at 25.02% vs. industry pretax margin at 17.05%. It's been a rough couple of days for the stock, losing 5.17% over the last week.

2. Wells Fargo & Company (NYSE:WFC): Money Center Banks Industry. Market cap of $145.93B. PEG at 0.97. TTM P/E at 13.66 vs. 3-year average at 17.54. Last year diluted EPS at $2.21 vs. two years prior EPS at $1.75. TTM gross margin at 77.78% vs. industry gross margin at 69.31%. TTM operating margin at 39.64% vs. industry operating margin at 37.88%. TTM pretax margin at 22.19% vs. industry pretax margin at 20.76%. The stock has gained 2.91% over the last year.

3. Capital One Financial Corp. (NYSE:COF): Credit Services Industry. Market cap of $23.91B. PEG at 0.71. TTM P/E at 8.50 vs. 3-year average at 14.49. Last year diluted EPS at $6.68 vs. two years prior EPS at $0.98. TTM gross margin at 32.86% vs. industry gross margin at 31.23%. TTM operating margin at 32.86% vs. industry operating margin at 27.44%. TTM pretax margin at 25.45% vs. industry pretax margin at 23.07%. The stock has gained 19.73% over the last year.

4. Credicorp Ltd. (NYSE:BAP): Money Center Banks Industry. Market cap of $6.71B. PEG at 0.37. TTM P/E at 13.01 vs. 3-year average at 14.20. Last year diluted EPS at $7.17 vs. two years prior EPS at $5.90. TTM gross margin at 76.16% vs. industry gross margin at 69.31%. TTM operating margin at 50.32% vs. industry operating margin at 37.88%. TTM pretax margin at 32.94% vs. industry pretax margin at 20.76%. The stock has lost 9.65% over the last year.

5. WMS Industries Inc. (NYSE:WMS-OLD): Recreational Goods, Other Industry. Market cap of $1.66B. PEG at 0.94. TTM P/E at 19.90 vs. 3-year average at 21.92. Last year diluted EPS at $1.88 vs. two years prior EPS at $1.59. TTM gross margin at 61.78% vs. industry gross margin at 36.76%. TTM operating margin at 19.79% vs. industry operating margin at 18.27%. TTM pretax margin at 20.19% vs. industry pretax margin at 15.73%. The stock has lost 26.18% over the last year.

6. Empresas ICA, S.A.B. de C.V. (NYSE:ICA): Heavy Construction Industry. Market cap of $1.42B. PEG at 0.48. TTM P/E at 22.22 vs. 3-year average at 128.66. Last year diluted EPS at $0.20 vs. two years prior EPS at $0.06. TTM gross margin at 19.04% vs. industry gross margin at 12.07%. TTM operating margin at 7.30% vs. industry operating margin at 5.20%. TTM pretax margin at 4.55% vs. industry pretax margin at 4.29%. The stock has lost 7.82% over the last year.

7. DG FastChannel, Inc. (NASDAQ:DGIT): Business Services Industry. Market cap of $863.14M. PEG at 0.96. TTM P/E at 23.32 vs. 3-year average at 23.95. Last year diluted EPS at $1.50 vs. two years prior EPS at $0.88. TTM gross margin at 67.59% vs. industry gross margin at 59.51%. TTM operating margin at 33.30% vs. industry operating margin at 17.86%. TTM pretax margin at 29.40% vs. industry pretax margin at 18.71%. The stock is a short squeeze candidate, with a short float at 11.28% (equivalent to 9.75 days of average volume). The stock has lost 8.41% over the last year.

8. Capella Education Co. (NASDAQ:CPLA): Education & Training Services Industry. Market cap of $681.27M. PEG at 0.65. TTM P/E at 14.25 vs. 3-year average at 26.03. Last year diluted EPS at $3.64 vs. two years prior EPS at $2.51. TTM gross margin at 65.84% vs. industry gross margin at 53.76%. TTM operating margin at 22.03% vs. industry operating margin at 21.90%. TTM pretax margin at 22.08% vs. industry pretax margin at 18.46%. The stock is a short squeeze candidate, with a short float at 12.73% (equivalent to 9.73 days of average volume). The stock has lost 46.56% over the last year.

9. USANA Health Sciences Inc. (NYSE:USNA): Drug Related Products Industry. Market cap of $501.80M. PEG at 0.68. TTM P/E at 13.05 vs. 3-year average at 14.93. Last year diluted EPS at $2.86 vs. two years prior EPS at $2.17. TTM gross margin at 81.90% vs. industry gross margin at 69.12%. TTM operating margin at 13.46% vs. industry operating margin at 12.24%. TTM pretax margin at 13.16% vs. industry pretax margin at 8.51%. The stock is a short squeeze candidate, with a short float at 16.52% (equivalent to 8.18 days of average volume). The stock has had a good month, gaining 17.05%.

10. Medifast Inc. (NYSE:MED): Specialty Retail, Other Industry. Market cap of $362.91M. PEG at 0.87. TTM P/E at 19.60 vs. 3-year average at 22.53. Last year diluted EPS at $1.35 vs. two years prior EPS at $0.81. TTM gross margin at 78.29% vs. industry gross margin at 69.12%. TTM operating margin at 12.35% vs. industry operating margin at 12.24%. TTM pretax margin at 12.45% vs. industry pretax margin at 8.51%. The stock is a short squeeze candidate, with a short float at 26.28% (equivalent to 7.5 days of average volume). The stock has lost 15.79% over the last year.

11. Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD): Heavy Construction Industry. Market cap of $352.27M. PEG at 0.39. TTM P/E at 15.30 vs. 3-year average at 18.75. Last year diluted EPS at $0.59 vs. two years prior EPS at $0.30. TTM gross margin at 22.68% vs. industry gross margin at 12.07%. TTM operating margin at 9.49% vs. industry operating margin at 5.20%. TTM pretax margin at 6.28% vs. industry pretax margin at 4.29%. The stock has had a couple of great days, gaining 5.27% over the last week.

12. Cardinal Financial Corp. (NASDAQ:CFNL): Regional Banks Industry. Market cap of $314.18M. PEG at 0.9. TTM P/E at 19.49 vs. 3-year average at 27.76. Last year diluted EPS at $0.62 vs. two years prior EPS at $0.37. TTM gross margin at 71.70% vs. industry gross margin at 69.37%. TTM operating margin at 42.98% vs. industry operating margin at 37.86%. TTM pretax margin at 23.12% vs. industry pretax margin at 20.79%. The stock has gained 13.72% over the last year.

*Profitability data sourced from Fidelity, P/E and EPS data sourced from Screener.co, 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.

Source: 12 Highly Profitable Stocks With Falling P/E, Undervalued by PEG