3 Undervalued, Highly Shorted Stocks With Strong Profitability

Includes: AFSI, BPI, RES
by: Kapitall

Do you consider yourself a contrarian investor, always looking for opportunities against the crowd? For ideas on how to start your own contrarian search, we ran a screen.

We began by screening for stocks with strong investor pessimism, with float shorts above 15%. We then screened for stocks also seeing redeeming factors.

We searched for stocks that appear undervalued relative to earnings growth, with PEG below 1. We then screened for those with strong profitability compared to industry peers, with higher gross, operating, and pretax margins than their industry averages by at least 5% on each margin. This indicates that these companies are taking a greater percentage of their revenues as profits, and they also have stronger control over their cost structures.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

Do you think these stocks are suffering from excessive pessimism? Use this list as a starting point for your own analysis.

List sorted by difference between pretax profit margin and industry average.

1. Bridgepoint Education, Inc. (NYSE:BPI): Provides postsecondary education services. Market cap at $1.14B, most recent closing price at $21.55. PEG at 0.39. Float short at 17.93%. TTM gross margin at 73.6% vs. industry average at 52.25%. TTM operating margin at 29.33% vs. industry average at 19.79%. TTM pretax margin at 29.63% vs. industry average at 16.87%.

2. RPC Inc. (NYSE:RES): Provides a range of oilfield services and equipment to the oil and gas companies primarily in the United States. Market cap at $2.24B, most recent closing price at $10.18. PEG at 0.31. Float short at 22.03%. TTM gross margin at 44.82% vs. industry average at 34.05%. TTM operating margin at 26.59% vs. industry average at 18.13%. TTM pretax margin at 26.13% vs. industry average at 13.79%.

3. AmTrust Financial Services, Inc. (NASDAQ:AFSI): Operates as a multinational specialty property and casualty insurance company in the United States and internationally. Market cap at $1.65B, most recent closing price at $27.36. PEG at 0.83. Float short at 19.57%. TTM gross margin at 20.74% vs. industry average at 14.3%. TTM operating margin at 17.18% vs. industry average at 11.18%. TTM pretax margin at 16.84% vs. industry average at 8.84%.

*Profitability data sourced from Fidelity, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.