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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 seeing significant net purchases from institutional investors over the current quarter 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 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 these stocks should be trading higher? Use this list as a starting-off point for your own analysis.

List sorted by net institutional purchases as a percent of share float.

1. Perry Ellis International Inc. (NASDAQ:PERY): Engages in designing, sourcing, marketing, and licensing apparel products for men and women in the United States and internationally. Market cap of $358.77M. TTM P/E ratio at 10.22 vs. 3-year average at 25.74. Last year EPS at $1.70 vs. prior-year EPS at $1.01. Net institutional shares purchased over the current quarter at 2.3M, which is 20.23% of the company's 11.37M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 2.14). The stock is a short squeeze candidate, with a short float at 13.48% (equivalent to 10.02 days of average volume). It's been a rough couple of days for the stock, losing 11% over the last week.

2. Sirona Dental Systems Inc. (NASDAQ:SIRO): Develops, manufactures, and markets dental equipment for dentists worldwide. Market cap of $2.50B. TTM P/E ratio at 19.13 vs. 3-year average at 25.97. Last year EPS at $1.59 vs. prior-year EPS at $0.96. Net institutional shares purchased over the current quarter at 11.2M, which is 19.99% of the company's 56.04M share float. It's been a rough couple of days for the stock, losing 5.76% over the last week.

3. AsiaInfo-Linkage,Inc. (NASDAQ:ASIA): Provides telecommunications software solutions and information technology (NYSE:IT) products and services to telecommunications carriers and other enterprises in the People's Republic of China. Market cap of $579.76M. TTM P/E ratio at 8.23 vs. 3-year average at 25.38. Last year EPS at $0.89 vs. prior-year EPS at $0.77. Net institutional shares purchased over the current quarter at 8.1M, which is 18.57% of the company's 43.62M share float. The stock is a short squeeze candidate, with a short float at 23.75% (equivalent to 9.96 days of average volume). The stock has performed poorly over the last month, losing 18.5%.

4. Lattice Semiconductor Corporation (NASDAQ:LSCC): Designs, develops, manufactures, and markets programmable logic products and related software. Market cap of $726.24M. TTM P/E ratio at 14.55 vs. 3-year average at 35.63. Last year EPS at $0.48 vs. prior-year EPS at -$0.06. Net institutional shares purchased over the current quarter at 15.4M, which is 15.11% of the company's 101.95M share float. It's been a rough couple of days for the stock, losing 5.39% over the last week.

5. Cinemark Holdings Inc. (NYSE:CNK): Engages in the motion picture exhibition business. Market cap of $2.27B. TTM P/E ratio at 15.13 vs. 3-year average at 21.99. Last year EPS at $1.29 vs. prior-year EPS at $0.88. Net institutional shares purchased over the current quarter at 11.2M, which is 13.49% of the company's 83.00M share float. Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.22%, current ratio at 2.23, and quick ratio at 2.19. The stock has gained 14.11% over the last year.

6. 51job Inc. (NASDAQ:JOBS): Provides integrated human resource services primarily in the People's Republic of China. Market cap of $1.23B. TTM P/E ratio at 23.92 vs. 3-year average at 30.78. Last year EPS at $0.65 vs. prior-year EPS at $0.32. Net institutional shares purchased over the current quarter at 1.2M, which is 13.45% of the company's 8.92M share float. It's been a rough couple of days for the stock, losing 5.86% over the last week.

7. TIM Participacoes S.A. (NYSE:TSU): Provides mobile telecommunications services through global system mobile (NASDAQ:GSM) technology to business and individual customers in Brazil. Market cap of $6.06B. TTM P/E ratio at 7.63 vs. 3-year average at 16.35. Last year EPS at $1.50 vs. prior-year EPS at $0.02. Net institutional shares purchased over the current quarter at 13.1M, which is 11.67% of the company's 112.22M share float. Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 5.13%, current ratio at 1.37, and quick ratio at 1.31. It's been a rough couple of days for the stock, losing 7.65% over the last week.

8. Ctrip.com International Ltd. (NASDAQ:CTRP): Provides travel services for hotel accommodations, airline tickets, and packaged tours in the People's Republic of China. Market cap of $4.84B. TTM P/E ratio at 29.11 vs. 3-year average at 42.21. Last year EPS at $4.37 vs. prior-year EPS at $2.93. Net institutional shares purchased over the current quarter at 15.0M, which is 11.29% of the company's 132.84M share float. The stock is a short squeeze candidate, with a short float at 9.06% (equivalent to 6.02 days of average volume). It's been a rough couple of days for the stock, losing 5.31% over the last week.

9. Acme Packet, Inc. (NASDAQ:APKT): Provides session delivery network solutions that enable the delivery of interactive communications, such as voice, video, and multimedia sessions; and data services across internet protocol (NYSE:IP) network borders. Market cap of $2.50B. TTM P/E ratio at 52.20 vs. 3-year average at 70.16. Last year EPS at $0.63 vs. prior-year EPS at $0.28. Net institutional shares purchased over the current quarter at 5.9M, which is 10.84% of the company's 54.43M share float. The stock has lost 11.33% over the last year.

10. Zhongpin, Inc. (NASDAQ:HOGS): Engages in the processing and distribution of meat and food products primarily in the People's Republic of China. Market cap of $363.24M. TTM P/E ratio at 4.71 vs. 3-year average at 8.73. Last year EPS at $1.65 vs. prior-year EPS at $1.46. Net institutional shares purchased over the current quarter at 3.1M, which is 10.78% of the company's 28.77M share float. The stock is a short squeeze candidate, with a short float at 22.06% (equivalent to 15.9 days of average volume). It's been a rough couple of days for the stock, losing 5.16% over the last week. The stock has had a good month, gaining 13.21%.

11. Wausau Paper Corp. (NYSE:WPP): Manufactures, converts, and sells paper and paper products in the United States and internationally. Market cap of $383.60M. TTM P/E ratio at 17.33 vs. 3-year average at 22.90. Last year EPS at $0.75 vs. prior-year EPS at $0.42. Net institutional shares purchased over the current quarter at 4.5M, which is 10.72% of the company's 41.96M share float. The stock is a short squeeze candidate, with a short float at 7.75% (equivalent to 8.92 days of average volume). The stock has lost 4.65% over the last year.

12. VanceInfo Technologies Inc. (NYSE:VIT): Engages in the provision of information technology (IT) services. Market cap of $441.59M. TTM P/E ratio at 14.68 vs. 3-year average at 36.49. Last year EPS at $1.88 vs. prior-year EPS at $0.52. Net institutional shares purchased over the current quarter at 1.4M, which is 9.92% of the company's 14.12M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 2.22). The stock is a short squeeze candidate, with a short float at 27.82% (equivalent to 9.33 days of average volume). It's been a rough couple of days for the stock, losing 7.3% over the last week.

13. iRobot Corporation (NASDAQ:IRBT): Designs and builds robots for the consumer, government, and industrial markets. Market cap of $850.12M. TTM P/E ratio at 23.94 vs. 3-year average at 33.01. Last year EPS at $0.96 vs. prior-year EPS at $0.13. Net institutional shares purchased over the current quarter at 2.4M, which is 9.80% of the company's 24.49M share float. The stock is a short squeeze candidate, with a short float at 16.93% (equivalent to 9.33 days of average volume). It's been a rough couple of days for the stock, losing 6.19% over the last week.

14. Bio-Reference Laboratories Inc. (NASDAQ: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 $454.75M. TTM P/E ratio at 13.26 vs. 3-year average at 21.72. Last year EPS at $0.94 vs. prior-year EPS at $0.78. Net institutional shares purchased over the current quarter at 2.1M, which is 8.48% of the company's 24.75M share float. The stock is a short squeeze candidate, with a short float at 24.64% (equivalent to 20.47 days of average volume). The stock has performed poorly over the last month, losing 16.44%.

15. Brookline Bancorp, Inc. (NASDAQ:BRKL): Operates as the holding company for Brookline Bank that provides various banking products and services. Market cap of $444.0M. TTM P/E ratio at 16.32 vs. 3-year average at 26.24. Last year EPS at $0.46 vs. prior-year EPS at $0.33. Net institutional shares purchased over the current quarter at 4.6M, which is 8.17% of the company's 56.30M share float. The stock is a short squeeze candidate, with a short float at 12.43% (equivalent to 13.05 days of average volume). It's been a rough couple of days for the stock, losing 6.83% over the last week.

16. Guess? Inc. (NYSE:GES): Engages in the design, marketing, distribution, and licensing of apparel and accessories for men, women, and children. Market cap of $2.80B. TTM P/E ratio at 10.15 vs. 3-year average at 13.17. Last year EPS at $3.11 vs. prior-year EPS at $2.61. Net institutional shares purchased over the current quarter at 5.6M, which is 7.4% of the company's 75.72M share float. The stock has lost 23.38% over the last year.

17. Shutterfly, Inc. (NASDAQ:SFLY): Provides an Internet-based social expression and personal publishing service that enables consumers to share, print, and preserve their memories through the medium of photography. Market cap of $1.28B. TTM P/E ratio at 88.14 vs. 3-year average at 116.04. Last year EPS at $0.59 vs. prior-year EPS at $0.22. Net institutional shares purchased over the current quarter at 2.3M, which is 6.83% of the company's 33.68M share float. The stock is a short squeeze candidate, with a short float at 18.14% (equivalent to 6.46 days of average volume). It's been a rough couple of days for the stock, losing 12.06% over the last week.

*P/E and EPS data sourced from Screener.co, institutional data sourced from Fidelity, all other data sourced from Finviz.

Source: 17 Smart Money Stock Picks With Falling P/E And Rising Earnings