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3 Stocks Trading Below the Peter Lynch Fair Value

Among these businesses, there could be opportunities for the value investor

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Oct 03, 2021
Summary
  • M.D.C. Holdings Inc, Greif and Genworth Financial Inc 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 looking 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.

M.D.C. Holdings Inc

The first stock that meets the criteria is M.D.C. Holdings Inc (

MDC, Financial), a Denver, Colorado-based homebuilding company with operations in the United States. The company also offers mortgage loans, insurance coverage and re-insurance on the claims products as well as casualty insurance products.

On Friday, M.D.C. Holdings Inc' shares closed at $46.34, below its Peter Lynch fair value per share of $179.75, for a price-to-Peter Lynch fair value ratio of about 0.26. This ranks better than 80% of the 40 companies that operate in the homebuilding and construction industry.

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The stock has a market capitalization of $3.27 billion after the share price recorded a 2.91% increase over the past year. The 52-week range is $38.14 to $63.86.

The stock has a median recommendation rating of overweight on Wall Street. The average target price is $73.20 per share.

Greif

The second stock that makes the cut is Greif (

GEF, Financial), a Delaware, Ohio-based producer and seller of industrial packaging products and services to companies worldwide.

On Friday, Greif's stock closed at $66.01, which is well below the Peter Lynch fair value per share of $106.53, yielding a price-to-Peter Lynch fair value ratio of approximately 0.62. This ranks better than 74% of the 95 companies that operate in the packaging and containers industry.

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The stock has a market capitalization of $3.18 billion following a 68.31% increase that occurred over the past year. The 52-week range is $37.89 to $68.81.

The stock has a median recommendation rating of overweight on Wall Street and an average target price of $73.40 per share.

Genworth Financial Inc

The third stock that qualifies is Genworth Financial Inc (

GNW, Financial), a Richmond, Virginia-based financial services company providing its global clients with various insurance solutions.

On Friday, Genworth Financial Inc’s shares closed at $3.88, below its Peter Lynch fair value per share of $38.06, for a price-to-Peter Lynch fair value ratio of about 0.10. This ranks higher than 98% 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 nearly 12% increase over the past year. The 52-week range is $2.56 to $4.76.

The stock has a median recommendation rating of hold with an average target price of $2.50 per share on Wall Street.

Disclosure: I have no positions in any securities mentioned.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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