Looking to get more bang for your buck with stocks in the low price range? Their volatility can mean big percentage gains (or losses) for investors. With this in mind the stocks on this list are trading between $1-$10 with market caps near $100 million and above. We also looked for dividend yields north of 1%.
We screened our low price universe for undervaluations. Specifically, we looked for low price to sales ratios and price movements that lag EPS trends.
Analyze These Ideas: Getting Started
Here are the details:
Low Price/Sales Ratio:
We like low-priced stocks, but there are so many different ways to gauge a stock’s value. One that can come in handy is the price-to-sales (P/S) ratio. A low P/S ratio means the price of the stock is cheap compared to revenues. If the number is below 1, then they can be considered undervalued. Be mindful that this ratio does not account for expenses or debt, and that there is a normal variation between industries.
We screened for stocks with P/S ratios below 2. Meaning the market cap of the company is no more than 2x the annual sales. We chose this limit after
speaking with Neil Hennessy
, Portfolio Manager and Chief Investment Officer of The Hennessy Mutual Funds, who said this is one of his favorite investing strategies.
Assuming that P/E is equal to a constant k, increases in EPS should be matched by proportionate increases in price. When they don't match up, a mispricing may have occurred. That is, these stocks have been seeing stronger increases in analyst estimated EPS than increases in price over the last month.
Do you think these low priced stocks are undervalued? Use this list as a starting point for your own analysis.