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Alberto Abaterusso
Alberto Abaterusso
Articles (2618) 

3 Stocks Trading Below the Peter Lynch Fair Value

They hold potential for solid growth

January 05, 2021 | About:

Investors looking for opportunities amid reasonably priced growing companies may be interested in the three stocks listed below, as their share prices are trading lower than their Peter Lynch Fair Values.

The Peter Lynch Fair Value, which is based on the idea that the fair price-earnings (PE) ratio for a growing company matches its growth rate, is a result of the combination of the following three factors:

  • The stock's PEG ratio.
  • The stock's five-year Ebitda growth rate.
  • The stock's earnings per share (EPS) without non-recurring items (NRI) for the trailing twelve months (TTM) through the most recent quarter.

Humana Inc

The first stock that makes the cut is Humana Inc (NYSE:HUM), a Louisville, Kentucky-based healthcare plans company.

On Monday, Humana Inc's share price closed at $412.19, significantly below its Peter Lynch Fair Value per share of $483.60, for a price-to-Peter-Lynch-Fair-Value ratio of about 0.85. This ranks higher than 75% of the companies that operate in the healthcare plans industry.

The stock has a market capitalization of $54.55 billion after an 11.24% increase that occurred over the past year. The 52-week range is $208.25 to $474.70.

Also, the stock's PEG ratio is 1.21 (versus the industry median of 1.45), the five-year Ebitda growth rate is 10.90% and its PE ratio without non-recurring items (NRI) is 13.21 (versus the industry median of 18.33).

The stock has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10.

As of January, the stock has seven strong buy recommendation ratings, five buy recommendation ratings and seven hold recommendation ratings on Wall Street. The average target price is $471.46 per share.

Koninklijke Ahold Delhaize NV

The second stock that makes the cut is Koninklijke Ahold Delhaize NV (ADRNY), a Zaandam, Netherlands-based operator of grocery stores serving more than 50 million customers in the U.S. and Europe.

On Monday, Koninklijke Ahold Delhaize's share price closed at $28.93, well below the Peter Lynch Fair Value per share of $35.14, for a price-to-Peter-Lynch-Fair-Value ratio of about 0.82. This ranks higher than 81% of the companies that operate in the retail - defensive industry.

The stock has a market capitalization of $30.29 billion after a 14.67% increase that happened over the past year. The 52-week range is $20.25 to $31.38.

Also, the stock's PEG ratio is 0.95 (versus the industry median of 1.86), the five-year Ebitda growth rate is 15.3% and its PE ratio without NRI is 14.47 (versus the industry median of 18.23).

The stock has a GuruFocus financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10.

As of January, the stock has one strong buy recommendation rating on Wall Street with a target price of $33.35 per share.

D.R. Horton Inc

The third stock that makes the cut is D.R. Horton Inc (NYSE:DHI), an Arlington, Texas-based residential construction company.

On Monday, D.R. Horton's share price closed at $67.34, substantially below its Peter Lynch Fair Value per share of $115.50, for a price-to-Peter-Lynch-Fair-Value ratio of about 0.58. This ranks higher than 59% of the companies that operate in the homebuilding and construction industry.

The stock has a market capitalization of $24.55 billion after a 26.1% increase that occurred over the past year. The 52-week range is $25.51 to $81.21.

Also, the stock's PEG ratio is 0.55 (versus the industry median of 0.73), the five-year Ebitda growth rate is 19.2% and its PE ratio without NRI is 10.49 (versus the industry median of 11.6).

The stock has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10.

As of January, the stock has six strong buy recommendation ratings, eight buy recommendation ratings and nine hold recommendation ratings on Wall Street. The average target price is $89.05 per share.

Disclosure: I have no position in any security mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master\\\'s Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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