Undervalued (Non-Banking)

This scanner, designed to identify undervalued non-banking stocks, operates on the principles of valuation analysis. It specifically filters out mid and large-cap companies whose P/E & P/B multiples are less than their industry multiples, the EV/ EBITDA ratio is less than 10 times, and the price-to-sales ratio is less than 2 times.

Let’s delve into what each of these multiples signifies:

Price/earnings-to-growth ratio (PEG ratio)

It is a stock’s price-to-earnings (P/E) ratio divided by its earnings growth rate over a specified period. The PEG ratio helps determine a stock’s value by considering the company’s expected earnings growth, offering a more comprehensive assessment than the standard P/E ratio. The PEG ratio helps unite companies from different industries or sectors on a uniform measurement scale. In this scanner, we must find companies trading at reasonable prices after factoring in their growth rate. We use a PEG ratio of less than 1.5 times to filter out stocks showing strong growth and trading at reasonable prices.

Price-to-book value (P/B) ratio

It is a crucial metric in our scanner, that evaluates a company’s current stock price in relation to its book value per share. A high P/B ratio may indicate an overpriced stock, while a low ratio could suggest an undervalued stock. Comparing a company’s P/B ratio with its industry multiples provides a more accurate picture of the company’s value.

Enterprise value (EV)  to the earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio

The EV/EBITDA ratio is a popular metric used as a valuation tool to compare a company’s value, debt included, to its cash earnings less non-cash expenses. The lower the EV/EBITDA, the cheaper the valuation for a company, and vice versa.

Price-to-sales (P/S) ratio

It measures the total value investors place on the company compared to the total revenue the business generates. It is calculated by dividing the share price by the sales per share, which helps investors know how much they pay for the company. A low P/S ratio may indicate that the stock is undervalued, and a higher-than-average ratio may indicate that the stock is overvalued.

• If the stock’s current price is less than its book value, it is considered an undervalued stock because it suggests the market values the company less than its net asset value. This indicates potential for price appreciation, as investors expect the stock to rise to reflect its true asset-based worth over time.
• If the stock’s current price is trading near the all-time low, it is undervalued because it suggests the market has potentially overreacted to negative news or conditions. Investors may see this as a buying opportunity, expecting the stock to rebound if the company’s fundamentals remain strong or improve.

Using the above filters for the scanner, we have obtained a list of stocks that appear to be undervalued relative to industry peers.