Are you looking for mid-sized companies that still have room to grow and are undervalued? Do you look for companies with low debt and manageable long term debt? For ideas on how to start your search, we ran a screen you may find helpful.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive) - a PEG ratio of 1 means the company is fairly priced.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it lets an investor know how much the investment community is willing to pay for every dollar's worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap, because investors are paying $1 or less for every dollar's worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community, not hard rules. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
The Long Term Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
We first looked for mid cap stocks. From here, we then looked for companies that are undervalued when company growth rate is taken into account (PEG Ratio < 1)(P/S<1). We then looked for companies that have maintained a sound capital structure (D/E Ratio<.3). We then looked for businesses that operate with little to no long term debt (Long Term D/E Ratio<.1). We did not screen out any sectors.
Do you think these mid-cap stocks will offer healthy returns? Use our list to help with your own analysis.
1) Guess' Inc. (NYSE:GES)
Guess' Inc. has a Price/Earnings to Growth Ratio of 0.78 and Price/Sales Ratio of 0.88 and Debt/Equity Ratio of 0.01 and Long Term Debt/Equity Ratio of 0.01. The short interest was 7.03% as of 05/12/2012. Guess, Inc. designs, markets, distributes, and licenses lifestyle collections of contemporary apparel and accessories for men, women and children that reflect the American lifestyle and European fashion sensibilities. The company's clothing collection includes jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear and intimate apparel.
2) Jacobs Engineering Group Inc. (NYSE:JEC)
Jacobs Engineering Group Inc. has a Price/Earnings to Growth Ratio of 0.95 and Price/Sales Ratio of 0.46 and Debt/Equity Ratio of 0.15, and Long-Term Debt/Equity Ratio of 0.08. The short interest was 2.52% as of 05/12/2012. Jacobs Engineering Group Inc. provides technical, professional, and construction services to various industrial, commercial, and governmental clients worldwide. It offers project services, including engineering, design, architectural, interiors, and planning services; and process, scientific, and systems consulting services relating to scientific testing, analysis, and consulting activities, as well as information technology, and systems engineering and integration activities. The company also provides construction services encompassing traditional field construction services, modular construction activities, and direct-hire construction and construction management services; and operations and maintenance services that include services performed in connection with operating large and complex facilities on behalf of clients, as well as services involving process plant and facilities maintenance.
3) Big Lots Inc. (NYSE:BIG)
|Industry:||Discount, Variety Stores|
Big Lots Inc. has a Price/Earnings to Growth Ratio of 0.90 and Price/Sales Ratio of 0.46 and Debt/Equity Ratio of 0.08 and Long Term Debt/Equity Ratio of 0.08. The short interest was 6.29% as of 05/12/2012. Big Lots, Inc., through its subsidiaries, operates as a broadline closeout retailer in the United States and Canada. The company offers products under various merchandising categories, such as consumables, including food, health and beauty, plastics, paper, chemical, and pet departments; furniture category comprising upholstery, mattresses, ready-to-assemble, and case goods departments; home category that consists of domestics, stationery, and home decorative departments; and seasonal category, which includes the lawn and garden, Christmas, summer, and other holiday departments. It also provides merchandise under the play n' wear category that comprise electronics, toys, jewelry, infant accessories, and apparel departments; and hardlines and other category, including appliances, tools, paint, and home maintenance departments.
4) GameStop Corp. (NYSE:GME)
GameStop Corp. has a Price/Earnings to Growth Ratio of 0.87 and Price/Sales Ratio of 0.29 and Debt/Equity Ratio of 0.00 and Long Term Debt/Equity Ratio of 0.00. The short interest was 49.62% as of 05/12/2012. GameStop Corp. operates as a video game retailer. It sells new and used video game hardware; physical and digital video game software; and accessories and other products that primarily include controllers, memory cards, and other add-ons, as well as strategy guides, magazines, and trading cards. The company also offers personal computer [PC] entertainment and other software across various genres, including sports, action, strategy, adventure/role playing, and simulation, as well as products that relate to the digital category comprising network point cards, prepaid digital and online timecards, and digitally downloadable software.
5) Harman International Industries Inc. (NYSE:HAR)
Harman International Industries Inc. has a Price/Earnings to Growth Ratio of 0.33 and Price/Sales Ratio of 0.70 and Debt/Equity Ratio of 0.24 and Long Term Debt/Equity Ratio of 0.00. The short interest was 2.62% as of 05/12/2012. Harman International Industries, Incorporated engages in the development, manufacture, and marketing of audio products and electronic systems primarily in the United States, Germany, and other parts of Europe. Its Automotive segment offers audio, electronic, and infotainment systems for vehicle applications to be installed primarily as original equipment by automotive manufacturers under the JBL, Infinity, Mark Levinson, Harman/Kardon, Logic 7, Lexicon, and Becker brand names. This segment also develops, manufactures, sells, and services audio systems under the Bowers & Wilkins brand name; and produces Harman/Kardon branded infotainment systems for Harley-Davidson touring motorcycles. The company's Consumer segment provides a range of audio and consumer electronics for home, multimedia, and mobile applications under the AKG, Harman/Kardon, Infinity, JBL, Mark Levinson, and Selenium brand names.
6) Ingram Micro Inc. (NYSE:IM)
Ingram Micro Inc. has a Price/Earnings to Growth Ratio of 0.80 and Price/Sales Ratio of 0.08 and Debt/Equity Ratio of 0.11 and Long Term Debt/Equity Ratio of 0.09. The short interest was 1.07% as of 05/12/2012. Ingram Micro Inc. distributes information technology (NYSE:IT) products and supply chain solutions worldwide. The company offers IT peripheral products, including printers, scanners, displays, projectors, monitors, panels, mass storage, and tape; large format LCD and plasma displays, enclosures, mounts, media players, content software, content creation, and content hosting; cell phones, digital cameras, digital video disc players, game consoles, televisions, audio, media management, and home control; barcode/card printers, AIDC scanners and software, and wireless infrastructure products; IP video surveillance, security alarm systems, fire alarm systems, and access control smart cards and printers; processors, motherboards, hard drives, and memory; and paper, carrying cases, anti-glare screens, and ink and toner supplies. It also provides various systems, such as rack, tower, and blade servers; desktops; portable personal computers and tablets; and personal digital assistants, as well as business application software, operating system software, entertainment software, middleware, developer software tools, security and storage software, and virtualization software.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.