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By Robbie Citrino for Kapitall.
price-to-earnings ratio (P/E), the most quoted comparative valuation metric on Wall Street, assesses the relative price of a stock compared to its peers by dividing the company’s current price by its earnings per share. But it's far from the only metric analysts use to asses the price of a stock.
price-to-sales (P/S) and
price-to-free-cash-flow (P/FCF), are used to compare relative price, and evaluate the company through different metrics. These numbers relate financial performance to stock price, as the amount of profit and free cash flow a business produces greatly influences the amount of money returned to stockholders in the form of dividends and share buybacks.
When a company is trading at a lower multiple compared to similar companies (industry, size, growth stage, etc.), the stock is usually undervalued by the market on some count.
Watching a company’s valuation in comparison to that of others is typically the easiest way to assess a stock’s future without having to dive into financial statements and sophisticated reports.
The following five companies all have P/E, P/S, and P/FCF below 15, 1, and 15 respectively, the threshold used by most analysts to be considered undervalued. Do you think the figures match the underlying value of the stock, or is Wall Street being bearish on these companies?
Use the list below to begin your anlysis and let us know what you think in the comments.
Click on the interactive chart to view data over time. 1. Aetna Inc. (
AET): Operates as a diversified health care benefits company in the United States. Market cap at $29.8B, most recent closing price at $83.39.
2. The Allstate Corporation (
ALL): Engages in the personal property and casualty insurance, life insurance, retirement, and investment products businesses primarily in the United States. Market cap at $25.15B, most recent closing price at $57.94.