When a dividend stock is trading below appeared market value, it can send a mixed message. To find out if it is a temporary aberration rather than a permanent one, it can be useful to look at the company's projected growth. When this rate is high, there is a fair chance that the dividend won't remain at a discount price for long. Today, we ran a screen for undervalued companies that are predicted for significant growth. We think you will find the list worthy of a deeper look.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its 12-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 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 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, but not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) Per Share.
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, 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.
We first looked for dividend stocks. We then looked for companies with estimated high-growth, with 1-year projected EPS growth above 25%. We then screened for businesses that are trading at a discount (P/S <1) (PEG <1). We did not screen out any market caps or sectors.
Do you think these stocks should have higher valuations? Use this list as a starting-off point for your own analysis.
1) GAIN Capital Holdings, Inc. (GCAP)
|Industry:||Investment Brokerage - National|
GAIN Capital Holdings, Inc. has a Dividend Yield of 4.26%, a Payout Ratio of 26.82%, a 1-Year Projected Earnings Per Share Growth Rate of 118.18%, a Price/Sales Ratio of 0.93, and a Price/Earnings to Growth Ratio of 0.98. The short interest was 2.35% as of 08/02/2012. GAIN Capital Holdings, Inc., through its subsidiaries, provides online trading services worldwide. It specializes in over-the-counter markets, including spot foreign exchange and precious metals, as well as contracts-for-difference. The company services retail investors through its FOREX.
2) TESSCO Technologies Inc. (TESS)
TESSCO Technologies Inc. has a Dividend Yield of 4.00%, a Payout Ratio of 31.06%, a 1-Year Projected Earnings Per Share Growth Rate of 28.78%, a Price/Sales Ratio of 0.19, and a Price/Earnings to Growth Ratio of 0.61. The short interest was 7.61% as of 08/02/2012. TESSCO Technologies Incorporated provides products and value chain solutions to organizations for building, operating, and maintaining wireless broadband systems primarily in the United States. It offers base infrastructure products, including base station antennas, cable and transmission lines, small towers, lightning protection devices, connectors, power systems, miscellaneous hardware, and mobile antennas to build, repair, and upgrade wireless telecommunications; and connector installation, custom jumper assembly, site kitting, and logistics integration services. The company also provides network systems products comprising fixed and mobile broadband equipment, wireless networking, filtering systems, two-way radios, and security and surveillance products to build and upgrade computing and Internet networks; and training classes, technical support, and engineering design services. In addition, it offers installation, test, and maintenance products, such as analysis equipment; various frequency, voltage, and power-measuring devices; and an assortment of tools, hardware, GPS, and replacement parts and components used by service technicians to install, tune, and maintain wireless communications equipment.
3) Barclays PLC (BCS)
|Industry:||Foreign Money Center Banks|
Barclays PLC has a Dividend Yield of 3.61%, a Payout Ratio of 24.21%, a 1-Year Projected Earnings Per Share Growth Rate of 57.56%, a Price/Sales Ratio of 1.00, and a Price/Earnings to Growth Ratio of 0.23. The short interest was 0.37% as of 08/02/2012. Barclays PLC provides various financial products and services worldwide. It offers retail and commercial banking, credit cards, investment banking, wealth management, and investment management services. The company's personal banking products include bank accounts, a range of credit cards through Barclaycard, savings accounts, loans, insurance, online banking, and mortgages through Woolwich.
4) CDI Corp. (CDI)
|Industry:||Staffing & Outsourcing Services|
CDI Corp. has a Dividend Yield of 3.24%, a Payout Ratio of 55.52%, a 1-Year Projected Earnings Per Share Growth Rate of 26.14%, a Price/Sales Ratio of 0.29, and a Price/Earnings to Growth Ratio of 0.96. The short interest was 3.58% as of 08/02/2012. CDI Corp., together with its subsidiaries, engages in the provision of various engineering and technology solutions, and professional staffing services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company offers engineering services, including feasibility studies, technology assessment, conceptual design, cost estimating, preliminary design, execution planning, procurement optimization detailed design, testing and validation of regulatory compliance, technology integration, and operating and maintenance support services; and information technology services comprising assessments, execution of business application services, Web development, quality assurance, and testing and program management services. It also provides skilled technical and professional personnel for discrete periods of time; and permanent placement services, as well as offers professional staffing services, such as managed services and managed staffing programs, functional staffing outsourcing, and business advisory services.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.