Seeking Alpha
Larry Meyers, PDL Capital (74 clicks)
Value, special situations, long-term horizon, small-cap
Profile| Send Message| ()  

There are many reasons the market ignores a great company. Sometimes the company is just too small to make it on anyone's radar. Sometimes it operates in a segment nobody really understands. And sometimes there is no good reason. So I did a screen for some companies trading at exceptionally low PEG ratios, but who were also growing at 15% or more.

My first pick comes from a sector I know well, consumer finance. EZCorp (EZPW) is an operator of pawn shops and payday loan stores in both the US and Mexico. The company has been increasingly focused on its pawn business, particularly in Mexico. There's method to this madness -- 80% of Mexico's population are potential pawn customers vs. only 20% in the US. Furthermore, Mexico has no usury cap and it would take a constitutional amendment to institute one.

EZCorp's pawn business is on fire, particularly in an economy where folks in need of short term emergency cash have items they can pawn. Earnings are projected to grow 30% this year ($2.55/share), 19% next year, and 15% over the next five years. The company has $27 million in cash. Thus, at a stock price of $30, the company is trading at a P/E of only12, giving it a PEG ratio of 0.4 on this year's earnings. I believe the stock is an easy double from here, and a triple over 3-5 years.

Forbes just ranked it as one of American's 100 fastest growing companies. EZCorp has several competitors in the space, of which I most like First Cash Financial Services (FCFS), although it seems fairly valued at a P/E of 20 with a growth rate of 20%. Cash America International (CSH) is arguably undervalued, but not by much, with a P/E of 12.5 on current growth rate of 20%, but 14% next year.

Apple Computer (AAPL) is the next choice. I know, I know, it isn't one of those companies that is off the beaten track. But by every metric I can find, Apple remains a bargain. The company is somehow expected to grow earnings by 80% this year -- eighty percent! Five year estimates are even at 23%! This is just incredible. And yet the stock only trades at a P/E of 14, for a PEG ratio of 0.6. The company has $28 billion of cash and no debt. It's a buy, even today, especially when you see IBM trading at a 14 P/E on a 11-14% growth rate.

Ever heard of Raymond James Financial (RJF)? I have, and unlike all the banks and investment banks that are getting hammered with bad press, this company has been quietly tending to its knitting for almost fifty years. The company engages in the underwriting, distribution, trading, and brokerage of equity and debt securities; and the sale of mutual funds and other investment products. It sits on $4.5 billion in cash and has no debt. Earnings are set to grow 20% this year and next, with a 12% five year annualized rate. The stock trades at a P/E of 13, giving it a current PEG ratio of only 0.65. It's a buy.

Source: The 3 Most Undervalued Stocks I Can Find