6 Stocks Undervalued by Free Cash Flow, Earnings Growth and EPS Trends

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 |  Includes: BBY, COF, DEPO, GME, STM, TI
by: Kapitall

Here we offer an interesting way to find potentially undervalued opportunities. Under the theoretical assumption that P/E is equal to a constant K, growth in EPS estimates should be matched by proportionate growth in price. When they don’t match up, a mispricing may have occurred.

Although there is no reason to expect that P/E remains constant, this is merely a theoretical assumption for the purpose of giving you a starting point for your own analysis.

We used this idea to screen for potentially undervalued stocks from a universe of stocks that also appear undervalued relative to earnings growth (with PEG < 1) and relative to free cash flow (with P/FCF < 10).

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the 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.

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

List sorted by difference between change in EPS and price.

1. Telecom Italia SpA (NYSE:TI): Diversified Communication Services Industry. Market cap of $23.69B. PEG at 0.98. P/FCF at 7.41. Over the last 30 days, analyst projected EPS has increased 10.40% (from $1.73 to $1.91), while the price has changed -7.43% (from $13.05 to $12.08). The stock is currently stuck in a downtrend, trading 6.67% below its SMA20, 10.97% below its SMA50, and 11.36% below its SMA200. It's been a rough couple of days for the stock, losing 5.5% over the last week.

2. STMicroelectronics NV (NYSE:STM): Semiconductor Industry. Market cap of $8.30B. PEG at 0.63. P/FCF at 9.74. Over the last 30 days, analyst projected EPS has increased 1.00% (from $1.00 to $1.01), while the price has changed -10.37% (from $9.93 to $8.90). Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.39%, current ratio at 2.12, and quick ratio at 1.58. It's been a rough couple of days for the stock, losing 11.54% over the last week.

3. GameStop Corp. (NYSE:GME): Electronics Stores Industry. Market cap of $3.37B. PEG at 0.76. P/FCF at 6.58. Over the last 30 days, analyst projected EPS has increased 0.34% (from $2.90 to $2.91), while the price has changed -10.22% (from $26.12 to $23.45). The stock is a short squeeze candidate, with a short float at 24.49% (equivalent to 8.31 days of average volume). It's been a rough couple of days for the stock, losing 12.45% over the last week.

4. Best Buy Co. Inc. (NYSE:BBY): Electronics Stores Industry. Market cap of $11.02B. PEG at 0.97. P/FCF at 8.33. Over the last 30 days, analyst projected EPS has increased 0.87% (from $3.46 to $3.49), while the price has changed -3.81% (from $30.41 to $29.25). The stock is currently stuck in a downtrend, trading 7.19% below its SMA20, 5.67% below its SMA50, and 15.37% below its SMA200. It's been a rough couple of days for the stock, losing 8.74% over the last week.

5. DepoMed Inc. (NASDAQ:DEPO): Drug Manufacturers Industry. Market cap of $452.97M. PEG at 0.15. P/FCF at 5.22. Over the last 30 days, analyst projected EPS has increased 1.85% (from $1.62 to $1.65), while the price has changed -2.59% (from $8.49 to $8.27). The stock is a short squeeze candidate, with a short float at 11.89% (equivalent to 7.51 days of average volume). The stock has gained 200.36% over the last year.

6. Capital One Financial Corp. (NYSE:COF): Credit Services Industry. Market cap of $22.38B. PEG at 0.67. P/FCF at 2.96. Over the last 30 days, analyst projected EPS has increased 2.52% (from $6.75 to $6.92), while the price has changed 0.73% (from $47.87 to $48.22). Might be undervalued at current levels, with a PEG ratio at 0.67, and P/FCF ratio at 2.96. It's been a rough couple of days for the stock, losing 10.24% over the last week.

*Price and EPS 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.