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A Trio of Stocks Trading Below Earnings Power Value

These businesses appear fairly priced

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Oct 29, 2021
Summary
  • Northwest Bancshares Inc, Hope Bancorp Inc and M/I Homes Inc are trading below their earnings power values (EPV)
  • The EPV was designed by Bruce Greenwald, a former professor at Columbia University and a prominent value investor
  • It is calculated as the adjusted earnings divided by the weighted average cost of capital
  • It allows investors to bypass a series of guesswork choices that must be made when evaluating the intrinsic value of a stock through the discounted cash flow model
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When screening the market for stocks that are trading at or below their fair prices, one tool investors can use is the earnings power value (EPV).

The EPV was designed by Bruce Greenwald, a former professor at Columbia University and a prominent value investor. Greenwald was in search of ways to bypass the series of guesswork choices that must be made when trying to evaluate the intrinsic value of a stock through the discounted cash flow valuation model. The EPV is calculated as the adjusted earnings divided by the weighted average cost of capital.

The stocks listed below seem reasonably priced as their share prices are trading lower than their respective EPVs.

Northwest Bancshares Inc

The first stock that holds the criteria is Northwest Bancshares Inc (

NWBI, Financial), a Warren, Pennsylvania-based regional bank providing personal and business banking solutions as well as investment management and trust services through 162 full-service offices and eight free standing drive-through facilities in Pennsylvania, New York, Ohio and Indiana.

Northwest Bancshares's EPV is $17.13 per share (as of the Sept. 2021 quarter), which is above the share price of $13.89 as of the end of trading on Thursday, for a margin safety of about 18.92%.

Due to a 30.2% jump in the share price which happened over the past year, the market capitalization is $1.76 billion. The 52-week range is $10.18 to $15.48.

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GuruFocus has assigned a score of 3 out of 10 to the company's financial strength and 4 out of 10 to its profitability.

BlackRock Inc., VANGUARD GROUP INC and STATE STREET CORP are among the largest top fund holders of the company with 14.82%, 10.70% and 3.78% of shares outstanding, respectively.

Hope Bancorp Inc

The second stock that holds the criteria is Hope Bancorp Inc (

HOPE, Financial), a Los Angeles, California-based regional bank that provides banking services for consumers and small, mid-sized businesses in several states of the United States.

Hope Bancorp Inc's EPV is $21.93 per share (as of the Sept. 2021 quarter), which is above the share price of $14.71 as of the end of regular trading hours on Thursday, for a margin of safety of 32.92%.

Following an 83% increase in the share price that took place over the past year, the market capitalization now trades near $1.77 billion. The 52-week range is $7.82 to $16.61.

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GuruFocus has assigned a score of 3 out of 10 to the company's financial strength rating and 5 out of 10 to its profitability rating.

BlackRock Inc. and VANGUARD GROUP INC are among the largest top fund holders of the company with 14.83% and 10.74% of shares outstanding, respectively.

M/I Homes Inc

The third stock that holds the criteria is M/I Homes Inc (

MHO, Financial), a Columbus, Ohio-based builder of single-family homes across several states in the U.S.

M/I Homes Inc's EPV is $60.15 per share (as of the June 2021 quarter), which is above the share price of $57.83 as of the end of regular hours on Thursday, determining a margin of safety of about 3.86%.

After the share price has increased 41.3% over the past year, the market capitalization is approximately $1.70 billion. The 52-week range is $40.24 to $74.85.

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GuruFocus has assigned a score of 6 out of 10 to the company's financial strength rating and 7 out of 10 to its profitability rating.

BlackRock Inc. and FMR LLC are among the largest top fund holders of the company with 16.94% and 8.98% of shares outstanding, respectively.

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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