3 Undervalued Stocks Using the Peter Lynch Analysis - Part 4

Author's Avatar
Jun 05, 2015
Article's Main Image

From my watch list, these three companies are undervalued based on the Peter Lynch Price Value.

1) Seagate Technology PLC (STX)

Description:Â The Company is a provider of electronic data storage solutions. Its products include hard disk drives, commonly referred to as disk drives, hard drives or HDDs. The Company competes with companies in the electronic data storage industry that provide alternative storage solutions, such as flash memory and SSDs.

Ratios: STX has a ROC of 80.49%, a ROA of 19.74% and a ROE of 62.82%. All ratios are at the all time high when compared to the company’s industry and even compared to the company’s history.

Compared to its industry, returns are performing better than 96% of other companies in the Global Data Storage industry.

Financials: The company has a financial situation that has to be taken under control. Cash to debt ratio is 0.66 and is underperforming the industry that has an average cash to debt of 1.36. Even interest coverage ratio doesn’t have a good performance according to the last balance sheet; it has a value of 9.11 and is ranked lower than 80% of its competitors (the average interest coverage ratio of STX’s industry is 488.91).

Growth: Over the last 12 months, the company had a steady and strong growth rate (per share).

Revenue +8.10% Â
EBITDA +25.30% Â
Free Cash Flow +35.00% Â
BookValue +20% Â
EPS +27.50% Â

Price: The stock is trading at about $55.00. The Peter Lynch earnings line gives a fair value of $88.40. The stock isundervaluedby 30%. The DCF value gives a price of $84.86 with a margin of safety of 36%.

Currently, the price is facing a downward trend that started in December 2014. It is down 20.33% from its 52 weeks high and up 9.62% from its 52 weeks low.

The 200-days moving average price is $58.

Technically, there is a head and shoulder (we are now on the right shoulder with a double-bottom at $50).

Dividend Yield: CBI has a high dividend yield of 3.71% with a growth rate of 110.10% over the last 3 years.

Gurus: During the last quarter (Q1 2015) the company has been bought by NWQ Managers (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio). John Hussman (Trades, Portfolio). Jim Simons (Trades, Portfolio) sold out his position, and John Buckingham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio) increased their stakes.

2)Â Altisource Portfolio Solutions SA (ASPS)

Description:Â Altisource Portfolio Solutions SA is a transaction solutions provider for the real estate, mortgage and consumer debt industries offering both distribution and content. It classifies its businesses into three reportable segments - Mortgage Services, Transaction Services and Technology Services.

Ratios: ASPS has a ROC of 98.83%, a ROA of 12.93% and a ROE of 98.09%. Compared to the ASPS’ sector, these ratios are better than 80% of other competitors in the Global Business Services industry, but ROA and ROC are at the bottom level if compared to the company’s history.

Financials: The company has a weak financial situation. Cash to debt ratio is 0.22, and compared to the company’s history this is the lowest level ever reached. Interest coverage has the same problem and is ranked lower than 77% of other companies in the same sector (the industry average is 45.07).

Growth: Over the last 5 years, the company had a steady and strong growth rate (per share).

Revenue +39.90% Â
EBITDA +42.50% Â
Free Cash Flow +41.90% Â
EPS +40.40% Â

This situation has gotten worse over the last 12 months. Book value dropped by 71%, EPS by 27.50% and EBITDA by 6.60%. Only revenue is growing by 37.90%.

Price: The stock is trading at about $27.57. The Peter Lynch value gives a price of $72.8. The stock isundervalued by 63%. The DCF value gives a price of $60.92.

Currently, the price is facing a long lasting down-trend that started in December 2013 and is down 77.45% from its 52-week high and up 124.51% from its 52-week low.

The 200-days moving average price is $47.

Technically, the company started a short term upward trend 3 months ago, and will test the main downward trend at about $44.

Gurus: During the first quarter, the company has been sold out by Jim Simons (Trades, Portfolio) and Chuck Royce (Trades, Portfolio). Leon Cooperman (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) reduced their stakes. Only Murray Stahl (Trades, Portfolio) bought shares.

3)Â Outerwall Inc (OUTR)

Description:The Company is a provider of automated retail solutions offering convenient products and services that benefit consumers and drive incremental retail traffic and revenue for retailers.

Ratios: OUTR has a ROC of about 60.70%, a ROA of 7.54% and a ROE of 130.45%. ROE is at the maximum level of both company’s history (previous max was 82.14) and industry (industry average level is 7.23). ROC is ranked higher than 87% of company’s competitors and is at the maximum level of the company history (previous max was 52.88). OUTR’s ROA is ranked higher than 74% of competitors and is far from the maximum level of 30.18 that the company reached more than 10 years back.

Financials: Even OUTR has a doubtful financial strength with an overall rank of 5/10. The company has a cash to debt of 0.23 (ranked lower than 77% of the other companies in the Global Specialty Retail industry) and an interest coverage ratio of 5.21 (ranked lower than 82% of its competitors).

Growth: Over the last 5 years, the company had a steady and strong growth rates per share.

Revenue +25.50% Â
EBITDA +26.40% Â
EPS +37.20% Â

Price: The stock is trading at about $76.97. The Peter Lynch value gives a price of $90.2. The stock is undervalued by 16%. The DCF value gives a price of $97.06.

The price has seen an upward trend since 2000. This upward trend had an acceleration on December 2008 and the price is now down 3.19% from its 52-week high and up 50.42% from its 52-week low.

The 200-days Moving Average price is $65.

Dividend Yield: CBI has a small dividend yield of 0.40% with a short track record. Not suggested for passive income investors.

Gurus: During the last quarter (Q1 2015) the company has been sold out by Mario Cibelli (Trades, Portfolio), John Hussman (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and David Dreman (Trades, Portfolio). Ken Fisher (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) reduced their stakes and Paul Tudor Jones (Trades, Portfolio) and Jim Simons (Trades, Portfolio) bought some shares of the company.

Summarizing the 3 stocks:

 STX ASPS OUTR
ROC 80.49% 98.83% 60.70%
ROA 19.74% 12.93% 7.54%
ROE 62.82% 98.09% 130.45%
Compared to Industry (better then) 96% 80% 74%
   Â
Cash to Debt 0.66 0.22 0.23
   Â
Revenue Growth (5y) 16.50% 39.90% 25.50%
EBITDA Growth (5y) n/a 42.50% 26.40%
BookValue Growth (5y) 22.60% 0.00% -1.10%
   Â
Current Price 54.54$ 27.57$ 76.97$
Peter-Lynch Price 88.4$ (+130%) 72.7$ (+191%) 190.2$ (+500%)
DCF Price 84.82$ (+97%) 60.92$ (+229%) 97.06$ (+300%)
52-Weeks High -20.33% -77.45% -3.19%
52-Weeks Low +9.62% +124.51% +50.42%
Trend Down Down Up
   Â
Dividend Yield 3.71% 0.00 0.40%