Many investors look to price to earnings ratios when determining if a stock is undervalued. Below are the 5 most profitable stocks with a price to earnings ratio under 10 as well as the industry average. In this article, I analyze these stocks on a relative valuation basis.
Avon Products Inc. (AVP) – The first stock in this analysis is one that has seen a slide in price over the past few months. AVP is currently coming off its 52 week low of around $16. However, that does not mean investors should stay away from this stock. AVP currently offers dividend yield of 5.70% to investors which is $0.92 annually. The stock’s earnings per share is $1.70 which gives it a price to earnings ratio of 9.5. This is almost half the industry ratio of 17.3 and well below the S&P 500 ratio of 24.0. Looking at one of AVP’s competitors in Revlon, Inc. (REV), AVP actually has the higher price to earnings ratio with REV currently at 2.47. However, the net income of AVP is also higher at $736.3 million compared to REV’s net income of $312.60. Based on the company’s low price to earnings ratio compared to the industry, the stock could be considered undervalued. Analysts also see the price of AVP to raise going forward with a mean target price of $22.38. If the stock hits this price, that would be an increase in price of about 25%. Looking at the potential profit, as well as the current dividend yield over 5%, AVP is a stock worth buying.
Devry Inc. (DV) – Slightly above its 52-week low of around $33 DV is another stock with potential for profit. With a beta of 0.76, DV is less volatile than the market as a whole. The company does offer a dividend to investors of $0.30 annually which is a yield of 0.90%. With the company’s earnings per share of $4.48, the stock has a price to earnings ratio of 7.4. This amount is more than half the industry average of 16.1. If the stock’s ratio was to move to the industry average, without sacrificing earnings, the stock price would more than double making for great returns for investors. One reason Devry Inc. is such a good company is because prepares the workforce for the job market. Of the Fortune 100 companies, over 90 of them currently employ DeVry graduates. Analysts also seem bullish on the stock as they predict a mean target price of $49.69, which would be about a 30% increase from its current price.
Hewlett-Packard Company (HPQ) – With a name that almost every consumer knows, Hewlett-Packard attempts to offer every kind of service in the tech world. As a stock, it currently offers a dividend to investors of $0.48 annually, which is a dividend yield of 1.90%. The stock does have a slightly higher than average beta of 1.34, but the company is still an investment to consider. With the price closer to the low around $21 than its high in the upper $40’s, the stock appears to be beaten down enough to be considered undervalued. The company’s earnings per share of $3.32 give the stock a price to earnings ratio of 7.8; lower than the industry value of 7.8 and over a third of the S&P 500 ratio. This can also be seen when comparing HPQ to industry leader International Business Machines Corp. (IBM). While IBM has a higher net income compared to HPQ’s of $7.07 billion, IBM has a price to earnings ratio of 14.36, almost twice HPQ’s. Ultimately, with the company’s stable earnings and relatively low price to earnings ratio, HPQ is a stock that could increase in price over the next few quarters.
Prudential Financial, Inc. (PRU) – With a beta of 2.31, PRU is the most volatile stock on the list and is considered to have a risk level more than twice the market. However, the stock does have a stable dividend of $1.45 annually, which is a yield of 3.2%. The company’s earnings per share of $6.38 gives the stock a price to earnings ratio of 7.4. This is quite lower than the industry ratio of 11.7. Two of PRU’s closest competitors American International Group, Inc. (AIG) and MetLife, Inc. (MET) are comparable to PRU. Net incomes are comparable with PRU’s $3.12 billion, AIG’s $4.97 billion, and MET’s $5.56 billion. In addition, the price to earnings ratio are nearby with AIG’s ratio 4.80 and MET’s ratio of 5.41. Even though PRU’s numbers are lower both of these competitors, PRU has steady numbers and also recently purchased real estate in downtown Chicago. The building was purchased for $183.5 million dollars and the company will receive a steady cash flow from the fully leased property.
Staples Inc. (SPLS) – SPLS is a fairly volatile stock with a beta of 1.12; only slightly more risky than the market. The stock has a dividend yield of 2.80%, or $0.40 annually. With earnings per share of $1.38, the stock has a price to earnings ratio right at 10. This is almost half the industry average of 16.3 and more than half the average of the S&P 500. When comparing SPLS’ net income to that of OfficeMax Incorporated (OMX), SPLS is the more profitable company with a total of $975.80 compared to OMX’s net income of $41.99 million. SPLS also has future growth prospects in the company’s paper line as the company announced it will release a Dunder Mifflin Paper line after the popular TV show The Office. With the stock's earnings, lower ratio, and growth opportunity, the stock has potential to make a profit for investors.