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In the search for potentially undervalued stocks, we ran a screen based on the theoretical assumption that if 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.

We admit that many stocks have been trading lower lately due to the breadth of the latest market downturn; however, it is helpful to focus on stocks with increases in projected earnings.

We ran a screen on stocks with high growth in net margin, comparing the trailing-twelve-month measure to the company’s five-year average. We screened for those exhibiting the behavior of growth in earnings estimates over the last 30 days coupled with decreases (or smaller increases) in price. We then screened for those that are also trading at steep discounts to target price, which further suggest that these stocks may be undervalued.

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.)

Do you think these stocks are undervalued? Use this list as a starting-off point for your own analysis.

List sorted by potential upside implied by target price.

1. Western Alliance Bancorporation (NYSE:WAL): Regional Banks Industry. Market cap of $474.24M. TTM net margin at 1.79% vs. 5-year average at -33.21%. Target price at $8.06 vs. current price at $5.77 (implies a potential upside of 39.65%). Over the last 30 days, analyst projected EPS has increased 4.55% (from $0.22 to $0.23), while the price has changed -21.65% (from $7.16 to $5.61). The stock is a short squeeze candidate, with a short float at 6.83% (equivalent to 9.46 days of average volume). The stock has performed poorly over the last month, losing 19.41%.

2. 3D Systems Corporation (NYSE:DDD): Application Software Industry. Market cap of $855.97M. TTM net margin at 17.85% vs. 5-year average at -3.05%. Target price at $23.67 vs. current price at $16.97 (implies a potential upside of 39.46%). Over the last 30 days, analyst projected EPS has increased 13.04% (from $0.69 to $0.78), while the price has changed -34.33% (from $25.46 to $16.72). The stock is a short squeeze candidate, with a short float at 10.46% (equivalent to 8.25 days of average volume). The stock has performed poorly over the last month, losing 33.35%.

3. BroadSoft, Inc. (NASDAQ:BSFT): Application Software Industry. Market cap of $760.25M. TTM net margin at 26.59% vs. 5-year average at -6.73%. Target price at $38.40 vs. current price at $28.22 (implies a potential upside of 36.07%). Over the last 30 days, analyst projected EPS has increased 29.73% (from $0.74 to $0.96), while the price has changed -22.05% (from $35.87 to $27.96). It's been a rough couple of days for the stock, losing 10.1% over the last week.

4. SL Green Realty Corp. (NYSE:SLG): REIT Industry. Market cap of $5.66B. TTM net margin at 57.33% vs. 5-year average at 14.02%. Target price at $86.00 vs. current price at $66.23 (implies a potential upside of 29.85%). Over the last 30 days, analyst projected EPS has increased 0.21% (from $4.76 to $4.77), while the price has changed -24.93% (from $86.27 to $64.76). This is a risky stock that is significantly more volatile than the overall market (beta = 2.36). It's been a rough couple of days for the stock, losing 8.79% over the last week.

5. National Penn Bancshares Inc. (NASDAQ:NPBC): Regional Banks Industry. Market cap of $1.05B. TTM net margin at 17.48% vs. 5-year average at -12.27%. Target price at $8.93 vs. current price at $6.90 (implies a potential upside of 29.47%). Over the last 30 days, analyst projected EPS has increased 10.87% (from $0.46 to $0.51), while the price has changed -12.18% (from $7.88 to $6.92). The stock is a short squeeze candidate, with a short float at 5.18% (equivalent to 9.53 days of average volume). The stock has performed poorly over the last month, losing 12.1%.

6. Acorda Therapeutics, Inc. (NASDAQ:ACOR): Biotechnology Industry. Market cap of $1.03B. TTM net margin at 5.90% vs. 5-year average at -64.52%. Target price at $33.40 vs. current price at $25.98 (implies a potential upside of 28.56%). Over the last 30 days, analyst projected EPS has increased 39.68% (from $0.63 to $0.88), while the price has changed -9.94% (from $28.68 to $25.83). The stock is a short squeeze candidate, with a short float at 11.12% (equivalent to 7.25 days of average volume). The stock has lost 12.96% over the last year.

7. Prospect Capital Corporation (NASDAQ:PSEC): Asset Management Industry. Market cap of $849.68M. TTM net margin at 74.38% vs. 5-year average at 31.68%. Target price at $11.00 vs. current price at $8.72 (implies a potential upside of 26.15%). Over the last 30 days, analyst projected EPS has increased 0.88% (from $1.14 to $1.15), while the price has changed -13.21% (from $10.07 to $8.74). The stock has performed poorly over the last month, losing 12.54%.

8. Brookfield Asset Management Inc. (NYSE:BAM): Asset Management Industry. Market cap of $16.45B. TTM net margin at 29.53% vs. 5-year average at 8.94%. Target price at $35.67 vs. current price at $28.56 (implies a potential upside of 24.88%). Over the last 30 days, analyst projected EPS has increased 66.67% (from $1.35 to $2.25), while the price has changed -11.96% (from $32.12 to $28.28). The stock has performed poorly over the last month, losing 10.72%.

9. Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG): Restaurants Industry. Market cap of $381.76M. TTM net margin at 16.46% vs. 5-year average at -4.15%. Target price at $24.67 vs. current price at $19.76 (implies a potential upside of 24.83%). Over the last 30 days, analyst projected EPS has increased 1.27% (from $0.79 to $0.80), while the price has changed -15.22% (from $22.34 to $18.94). The stock has performed poorly over the last month, losing 11.55%.

10. Boston Scientific Corporation (NYSE:BSX): Medical Instruments & Supplies Industry. Market cap of $9.67B. TTM net margin at 7.90% vs. 5-year average at -20.38%. Target price at $7.87 vs. current price at $6.32 (implies a potential upside of 24.47%). Over the last 30 days, analyst projected EPS has increased 12.50% (from $0.40 to $0.45), while the price has changed -7.68% (from $6.90 to $6.37). The stock has gained 15.96% over the last year.

11. NewStar Financial, Inc. (NASDAQ:NEWS): Credit Services Industry. Market cap of $488.35M. TTM net margin at 22.95% vs. 5-year average at -11.07%. Target price at $12.00 vs. current price at $9.73 (implies a potential upside of 23.33%). Over the last 30 days, analyst projected EPS has increased 13.64% (from $0.22 to $0.25), while the price has changed -8.52% (from $10.68 to $9.77). This is a risky stock that is significantly more volatile than the overall market (beta = 2.35). The stock has had a couple of great days, gaining 10.82% over the last week.

12. DuPont Fabros Technology, Inc. (NYSE:DFT): Property Management Industry. Market cap of $1.35B. TTM net margin at 25.67% vs. 5-year average at -15.39%. Target price at $26.54 vs. current price at $21.69 (implies a potential upside of 22.35%). Over the last 30 days, analyst projected EPS has increased 3.03% (from $0.66 to $0.68), while the price has changed -20.23% (from $26.35 to $21.02). The stock is a short squeeze candidate, with a short float at 21.95% (equivalent to 13.84 days of average volume). The stock has performed poorly over the last month, losing 17.69%.

EPS and price data sourced from Yahoo! Finance; target price and net margin data sourced from Screener.co; all other data sourced from Finviz.

Source: 12 Undervalued Stocks With Growing Profitability