Lookers and Redrow are two of the stocks I have identified as undervalued. This means their current share prices are trading at levels less than what the companies are actually worth. There’s a few ways you can value a company. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. Analysing the most recent financial data, I’ve created a list of companies that compare favourably in all criteria, making them potentially good investments.
Lookers plc (LSE:LOOK)
Lookers plc engages in the sale, hire, and maintenance of motor vehicles and motorcycles in the United Kingdom and Ireland. Started in 1908, and currently run by Andrew Bruce, the company now has 7,872 employees and with the company’s market cap sitting at GBP £389.25M, it falls under the small-cap category.
LOOK’s stock is currently trading at -62% below its true level of £2.6, at a price of £0.98, based on my discounted cash flow model. The mismatch signals a potential chance to invest in LOOK at a discounted price. In terms of relative valuation, LOOK’s PE ratio stands at 5.1x while its specialty retail peer level trades at 12.3x, implying that relative to its competitors, we can buy LOOK’s stock at a cheaper price today. LOOK is also robust in terms of financial health, with short-term assets covering liabilities in the near future as well as in the long run. It’s debt-to-equity ratio of 46% has over time, indicating its capacity LSE:LOOK PE PEG Gauge Nov 15th 17
Redrow plc (LSE:RDW)
Redrow plc focuses on housebuilding activities in the United Kingdom. Started in 1974, and now run by John Tutte, the company provides employment to 2,200 people and with the stock’s market cap sitting at GBP £2.15B, it comes under the mid-cap stocks category.
RDW’s stock is now trading at -38% beneath its value of £9.55, at a price tag of £5.97, according to my discounted cash flow model. The discrepancy signals an opportunity to buy low. Additionally, RDW’s PE ratio stands at around 8.5x while its household durables peer level trades at 12.2x, implying that relative to its competitors, RDW’s stock can be bought at a cheaper price. RDW is also a financially healthy company, with short-term assets covering liabilities in the near future as well as in the long run. It’s debt-to-equity ratio of 11% has for the last couple of years signifying RDW’s capacity LSE:RDW PE PEG Gauge Nov 15th 17
STM Group Plc (AIM:STM)
STM Group Plc, together with its subsidiaries, provides various financial services in Gibraltar, Malta, Jersey, Spain, the United Kingdom, and internationally. Established in 1989, and run by CEO Alan Kentish, the company currently employs 173 people and with the stock’s market cap sitting at GBP £24.09M, it comes under the small-cap category.
STM’s stock is currently trading at -44% beneath its actual worth of £0.73, at a price of £0.41, based on its expected future cash flows. signalling an opportunity to buy the stock at a low price. What’s even more appeal is that STM’s PE ratio is trading at 7.3x while its capital markets peer level trades at 17.9x, indicating that relative to its competitors, we can buy STM’s stock at a cheaper price today. STM is also in good financial health, as short-term assets amply cover upcoming and long-term liabilities. The stock’s debt-to equity ratio of 11% has been diminishing for the past few years signalling STM’s ability to reduce its debt obligations year on year. AIM:STM PE PEG Gauge Nov 15th 17
For more financially sound, undervalued companies to add to your portfolio, you can use our free platform to explore our interactive list of undervalued stocks.
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