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A Trio of Stocks Trading Below the Peter Lynch Fair Value

Value investors could find opportunities among these businesses

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Alberto Abaterusso
Aug 29, 2021

Summary

  • LGI Homes, Commercial Metals and NMI Holdings are trading lower than their Peter Lynch fair values.
  • The metric is based on the idea that the fair price-earnings ratio for a growing company is on par with its growth rate.
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When searching for opportunities among growing companies, investors could be interested in the following stocks, as their share prices are trading lower than their Peter Lynch fair values.

The metric, which is based on the idea the fair price-earnings ratio for a growing company is on par with its growth rate, is derived from the combination of the following components:

  • The stock's price-earnings to growth ratio.
  • The stock's five-year Ebitda growth rate.
  • The stock's earnings per share without non-recurring items for the trailing 12 months through the most recent quarter.

LGI Homes

The first stock that meets the criteria is LGI Homes Inc. (

LGIH, Financial), a Texas-based home building company.

On Friday, LGI Homes' shares closed at $158.20, below its Peter Lynch fair value per share of $438, for a price-to-Peter Lynch fair value ratio of about 0.36. This ranks higher than 76% of the 36 companies that operate in the homebuilding and construction industry.

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The stock has a market capitalization of $3.89 billion after the share price recorded a 41.43% increase over the past year. The 52-week range is $95.54 to $188.

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

As of August, the stock has a median recommendation rating of hold on Wall Street. The average target price is $165.25 per share.

Commercial Metals

The second stock that makes the cut is Commercial Metals Co. (

CMC, Financial), an Irving, Texas-based producer of steel and metal products and materials as well as a provider of related services in the United States and internationally.

On Friday, Commercial Metals' stock closed at $33.8, which is well below the Peter Lynch fair value per share of $67.50, yielding a price-to-Peter Lynch fair value ratio of approximately 0.50. This ranks higher than 71% of the 122 companies that operate in the steel industry.

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The stock has a market capitalization of $4.08 billion following a 62% increase that occurred over the past year. The 52-week range is $18.675 to $36.49.

The company has a GuruFocus financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10.

As of August, the stock has a median recommendation rating of hold on Wall Street and an average target price of $34.14 per share.

NMI Holdings

The third stock that qualifies is NMI Holdings Inc. (

NMIH, Financial), an EmeryVille, California-based provider of private mortgage guaranty insurance services to American national and regional mortgage banks, money center and community banks, banks, credit unions, builder-owned mortgage and internet-sourced lenders.

On Friday, NMI Holdings' shares closed at $23, below its Peter Lynch fair value per share of $56.75, for a price-to-Peter Lynch fair value ratio of about 0.40. This ranks higher than 80% of the 92 companies that operate in the insurance industry.

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The stock has a market capitalization of $1.97 billion following a 34% increase over the past year. The 52-week range is $16.01 to $26.82.

GuruFocus assigned a score of 5 out of 10 for both the company's financial strength rating and its profitability rating.

As of August, the stock has a median recommendation rating of buy with an average target price of $31.27 per share on Wall Street.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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