Each of the three stocks on this list trades at a price that’s less than the book value of the company, and yet they still return cash to shareholders in the form of dividends.
There could be a number of reasons for their low prices, such as poor sector outlooks, or it might be that they’re so lightly traded that they just don’t show up on the screens of the big institutions. Perhaps there might even be good reason why they’re hated or ignored; as value investors, it's our task to determine which cheap stocks are bargains vs. which are traps.
The Aaron’s Company
The Aaron’s Company (AAN, Financial) is trading at a discount to its book value; investors can buy it for 6% less than it’s worth on paper. The rental and leasing services company is lightly traded with an average daily volume of only 300,000 shares, which may be a reason it’s being avoided by those institutional investors who require much greater liquidity.
Headquartered in Atlanta, Georgia, this rent-to-own and lease-to-own business has been around since 1955. Aaron’s operates or franchises more than 1,300 stores in 47 U.S. states and in Canada. According to their website, “services are available through multiple channels to approximately 40-50 percent of the U.S. population who make less than $50,000 annual household income.”
The stock trades with a price-earnings ratio of 6.91, a substantially lower valuation than that of the market as a whole. The price-sales ratio is a low 0.37 and the price-to-free-cash-flow ratio comes in at 20.30. Shareholder equity greatly exceeds long-term debt. Earnings this year are up by 141%, and the past five-year EPS growth rate is 10%.
Aaron's pays investors a 1.87% dividend.
The short float of 5% is higher than that of most NYSE stocks and may reflect growing concern about how the possibility of a recession might affect the sector.
Century Communities
Century Communities (CCS, Financial) can be purchased at just 97% of its book value. The residential construction company may find its stock avoided right now because of housing market recession fears. Whatever is holding it back, with a price-earnings ratio of only 3.40, it’s definitely on the bargain basement shelf.
Based in Greenwood Village, Colorado, with operations in California, Nevada, North Carolina and 14 other U.S. states, Century calls itself “a to 10 homebuilder.” According to Wallmine, CEO Dale Franceson now “owns at least 458,984 units of Century Communities Inc. stock.”
This year’s earnings per share are up by 135%. The EPS growth record for the past five years is 44.10%. Wall Street expectations for next year’s earnings are less than those figures. The company’s long-term debt slightly exceeds its shareholder equity. Century’s short float sits at 6%, suggesting some investor concern about economic prospects for the homebuilder sector.
They are paying a 1.18% dividend. Average daily volume is relatively light at about 500,000 shares, possibly too light for large investors looking for needed liquidity.
Eneti
Eneti (NETI, Financial) trades at just 28% of its book value. The marine shipping company, based in Monaco, used to be called Scorpio Bulkers and began trading on the New York Stock Exchange in December, 2013.
The company took on the new name in February 2021. According to its website, Eneti is “transitioning” from a dry bulk container company to “marine-based renewable energy, including investing in the next generation of wind turbine installation vessels.”
Earnings per share this year are up by 102.30% and the past five-year EPS growth rate is 15.70%. The price-sales ratio is a relatively low 1.74. Eneti’s shareholder equity is much greater than the amount of long-term debt.
Investors are paid a dividend that yields 0.64% annualized.
Average daily volume is light for an NYSE listed equity at just 379,000 shares.
It’s notable that the most recent evaluations of the company by Wall Street analysts are generally positive. For example, Citigroup (C, Financial) initiated a “buy” on the company on Feb. 11. On Jan. 21, Jefferies (JEF, Financial) moved the stock from a “hold” to a “buy” recommendation.
