If a company’s P/E ratio has fallen over time, as its earnings steadily rise, it is a sign that price has not proportionately increased with earnings. In other words, the company’s earnings may not be fully priced into the stock, and the stock may be undervalued.
We ran a screen on stocks from the healthcare sector for those exhibiting these trends: a falling P/E ratio (comparing the trailing-twelve-month ratio to the 3-year average) and rising EPS over the same time period.
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 undervaluing these names? Use this list as a starting-off point for your own analysis.
List sorted by market cap.
1. Sirona Dental Systems Inc. (SIRO): Develops, manufactures, and markets dental equipment for dentists worldwide. Market cap of $2.50B. TTM P/E at 19.54 vs. 3-year average at 25.97. Last year EPS at $1.59 vs. 2-year prior EPS at $0.53. Net institutional shares purchased over the current quarter at 9.6M, which is 17.13% of the company's 56.04M share float. The stock has gained 29.56% over the last year.
2. NuVasive, Inc. (NUVA): Engages in the design, development, and marketing of minimally disruptive surgical products and procedures for the spine. Market cap of $870.0M. TTM P/E at 13.19 vs. 3-year average at 112.79. Last year EPS at $1.72 vs. 2-year prior EPS at -$0.77. Net institutional shares purchased over the current quarter at 3.2M, which is 8.06% of the company's 39.72M share float. The stock is a short squeeze candidate, with a short float at 16.97% (equivalent to 6.32 days of average volume). It's been a rough couple of days for the stock, losing 9.99% over the last week.
3. Bio-Reference Laboratories Inc. (BRLI): Provides clinical laboratory testing services for the detection, diagnosis, evaluation, monitoring, and treatment of diseases primarily in the greater New York metropolitan area. Market cap of $560.40M. TTM P/E at 16.80 vs. 3-year average at 21.72. Last year EPS at $0.94 vs. 2-year prior EPS at $0.56. Net institutional shares purchased over the current quarter at 1.1M, which is 4.45% of the company's 24.74M share float. The stock is a short squeeze candidate, with a short float at 26.7% (equivalent to 23.09 days of average volume). The stock has gained 1.57% over the last year.
*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.