6 Low P E Stocks That Investors Must Not Overlook

It shows whether a company’s stock price is overvalued or undervalued and can reveal how a stock’s valuation compares to its industry group or a benchmark like the S&P 500 index. A good P/E for one group or sector could be a poor P/E for another sector so comparisons should compare similar companies. Growth stocks tend to be more volatile than the broader market, and investors often review adventure capitalist: the ultimate road trip sell growth stocks during periods of uncertainty in the market. The company has a “B” financial health rating from Morningstar and a 0.9% dividend yield. The P/E ratio helps investors determine the market value of a stock as compared to the company’s earnings. In short, the P/E ratio shows what the market is willing to pay today for a stock based on its past or future earnings.

That gives it a buyback yield of 5.2% on top of its 3.72% dividend yield. This makes NVS one of the more attractive dividend stocks on this list. The earnings yield as an investment valuation metric is not as widely used as the P/E ratio. Earnings yields can be useful when concerned about the rate of return on investment. For equity investors, however, earning periodic investment income may be secondary to growing their investments’ values over time. This is why investors may refer to value-based investment metrics such as the P/E ratio more often than earnings yield when making stock investments.

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An investor might be comfortable buying in at a high P/E ratio expecting earnings growth to bring the P/E back down to a lower level if the company is growing quickly. But they might look elsewhere for a stock with a lower P/E if earnings aren’t growing quickly enough. One-time adjustments such as the sale of a subsidiary could inflate earnings in the short term.

In the years ahead, I believe Albemarle will gradually transform into a dividend-paying machine as it gobbles up lithium market share and cranks out lots of cash. For investors that like to emulate Buffett’s value stock-picking methodology, Albemarle deserves a fresh look right now. So PagSeguro’s stock gives you a high-growth financial services business in a stabilizing corner of the world economy — all at a bargain-bin share price. On that note, we asked three of The Motley Fool’s top tech sector analysts to share their best ideas under Benjamin Graham’s guiding principle of a low price-to-earnings ratio. Read on to see why they selected lithium producer Albemarle (ALB -4.34%), semiconductor designer Microchip (MCHP -3.79%), and digital payments expert PagSeguro Digital (PAGS -3.89%). Most companies announce earnings approximately one month after the end of the quarter.

  • They tend to offer unique services and products, and frequently develop novel technologies or intellectual property that puts them ahead of their competitors.
  • The consumer staples sector had an average P/E ratio of 25.91 last year, indicating that PG shares may be neither undervalued nor overvalued.
  • And finally, always dig deep to see why a particular company has a low P/E.
  • Studies conclude that expected inflation can either positively or negatively impact stocks, depending on the time period, along with an investor’s ability to hedge and the government’s monetary policy.

But since the P/E multiples for 2021 and 2022 are low, at 16.0 and 14.2 respectively, the PEG ratios are very low. T Rowe Price is a global mutual fund and separate account manager based in Baltimore, but with offices around the world. As of March 31, the company had $1.52 trillion in assets under management (AUM). Over half of this AUM amount was from mutual funds, or $816 billion, and the rest from sub-advised or separate accounts that it manages. The company’s earnings revolve around net inflows as well as the market performance and its outperformance (or not). Analysts foresee EPS rising by 39.6% to $19.65 this year on a non-GAAP basis from $14.08 in 2020.

What Is the Price-to-Earnings (P/E) Ratio?

This refers to the amount of earnings that can be attributed to actual growth in the company and not to outside factors like inflation. To reduce the risk of inaccurate information, the P/E ratio is but one measurement that analysts scrutinize. That’s why the P/E ratio continues to be one of the most centrally referenced points of data when analyzing a company, but by no means is it the only one. As such, one should only use P/E as a comparative tool when considering companies in the same sector because this kind of comparison is the only kind that will yield productive insight. The relative P/E compares the current absolute P/E to a benchmark or a range of past P/Es over a relevant time period, such as the past 10 years.

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There are several services that track and analyze expected earnings estimates. Services such as LSEG I/B/E/S and Zacks Investment Research provide consensus earnings estimates by tracking the estimates of thousands of investment analysts. Tracking these expectations and their changes is an important and rewarding strategy for stock investors. Analysts are expecting double-digit earnings growth of 12.1% for the S&P 500 in 2024. The P/E ratio is calculated as a stock’s current share price divided by its earnings per share (EPS), usually for the last 12 months—also called the trailing 12 months (TTM).

The PEG ratio is calculated as a company’s trailing price-to-earnings (P/E) ratio divided by the growth rate of its earnings for a specified time period. Positive earnings surprises occur when actual reported earnings are significantly above forecasted earnings per share. Negative earnings surprises occur when reported earnings per share are significantly below earnings expectations. The stock prices of firms with significant positive bitfinex review earnings surprises show above-average performance, while those with negative surprises have below-average performance. For example, a low P/E ratio may suggest that a stock is undervalued and therefore should be bought—but factoring in the company’s growth rate to get its PEG ratio can tell a different story. PEG ratios can be termed “trailing” if using historic growth rates or “forward” if using projected growth rates.

The table below shows the results of our list of seven stocks to buy with a growth-at-a-reasonable price. It shows the stocks ranked by their 2021 PEG ratios, as well as the numbers used to calculate the ratios. Last year the company produced earnings of $3.41 per share, on a non-GAAP basis. Moreover, in 2021 EPS is forecast to hit $4.06, up 19.1%, and for 2022 $4.58, up 12.8%.

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In other words, Bank of America traded at roughly 16x trailing earnings. However, the 16.21 P/E multiple by itself isn’t helpful unless you have something to compare it with, such as the stock’s industry group, a benchmark index, or Bank of America’s historical P/E range. This number signals the company’s performance over the past 12 months. The second type of EPS is found in a company’s earnings release, which often provides EPS guidance. This is the company’s best-educated guess of what it expects to earn in the future.

An individual company’s P/E ratio is much more meaningful when taken alongside the P/E ratios of other companies within the same sector. For example, an energy company may have a high P/E ratio, but this may reflect a trend within the sector rather than one merely within the individual company. An individual company’s high P/E ratio, for example, would be less cause for concern when the entire sector has high P/E ratios.

Despite these drastically varying reasons for getting started, companies must adopt a particular goal once operations begin — profitability. Enter your email address below to receive the latest headlines and analysts’ recommendations for your stocks with our free daily email newsletter. Stocks with high price-to-earning (P/E) ratios can be overpriced.

If a major accounting scandal story breaks in a publicly-traded company, the share price will decline quickly. A low share price without a corresponding earnings decrease will show a low P/E stock, but obviously, a company with an accounting scandal won’t go on your buy list. Low P/E ratios can often mean an undervalued stock, but this isn’t a uniform scenario.

But it could also mean a deeply troubled company with a stock facing the consequences from investors. Theoretically, a low P/E ratio is better than a high one, but understand the context of these numbers and use them appropriately. To better understand P/E ratios and how they help investors, compare individual stocks to market averages, industry averages and the numbers of their direct competition. Is the stock you’re researching higher than its peers and the market as a whole? If so, you might be looking at a company with too lofty a valuation. The P/E rate shows how efficiently a company’s profits are created since not every dollar of revenue turns into an equal dollar of profit.

The company can clearly afford this dividend given its earnings power and positive earnings outlook. Nevertheless, analysts expect earnings to hit ifc markets review $12.19 EPS this year, up 27.2% from $9.58 on a non-GAAP basis in 2020. However, next year, EPS is seen as rising just 5.3% to $12.84 per share.

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