If you're looking for cheap, Benjamin Graham-type stocks, then I highly recommend taking a look at prescription and non-prescription pet medication distribution business Petmed Express Inc. (PETS, Financial).
Cheap income
This company is a relatively profitable business. It recorded an operating margin of 16.3% for 2019, and return on capital employed has averaged 39% for the past six years. For fiscal 2019, the company reported free cash flow per share of $2.17, up from $1.80 in 2018 and 2019.
Based on these figures, the stock is currently trading at price-ree cash flow ratio 6.9. Thanks to this cash generation, Petmed's balance sheet is stuffed full of cash.
At the end of its 2019 financial year, the company had $101 million of net cash on the balance sheet, equivalent to around $4.9 per share. That's compared to the current share price of $15.97 (at the time of writing). As well as building up its cash balance, the company is distributing cash to investors.
Last year, it paid a total dividend per share of $1.06, and Wall Street is expecting a similar payout for fiscal 2020, which would give a dividend yield of 6.9% at the current price.
Analysts have also penciled in earnings per share of $1.66 for the current financial year, giving a forward price-earnings ratio of 9.2 or 6.7 on a cash-adjusted basis. Such a dirt-cheap, cash-rich stock is worth a closer look in my view.
Dividend track record
Another cheap Benjamin Graham type stock worth a closer look is Hooker Furniture (HOFT, Financial).
Based on current growth forecasts, this company is trading at a forward price-earnings ratio of 7.9. Analysts have earnings per share falling around 27% year-on-year, so it's trading at trailing 12-month price-earnings ratio of 6.7. If you're using Benjamin Graham's criteria for finding cheap stocks, this valuation fits well under the price-earnings ratio of 15 limit he demands.
Other metrics are also favorable. At the end of its 2019 financial year (the last full year for which data is available), the company had net debt of $5.8 million and a net gearing ratio of just 2.2%.
Hooker has consistently paid a dividend to investors for the last 10 years, and it looks as if this is set to continue considering its strong balance sheet, and that it has generated $19.5 million of free cash flow per annum for the past five years (compared to the annual dividend cost of $6.7 million for fiscal 2019. Last year, Hooker's dividend per share totaled 56 cents, giving a dividend yield of 2.8% at the current stock price of $20.30.
At the time of writing the stock is trading at a price-book value of 0.9 and a price-tangible book value of 1.2. Book value per share was $22.30 at the end of fiscal 2019.
Telecoms supplier
The last company is Preformed Line Products Co. (PLPC, Financial).
This company designs and manufactures products used in the construction and maintenance of overhead and underground telecommunications networks. It is profitable and generating plenty of free cash flow. For 2018, free cash flow per share totaled $2.63, which implies the stock is currently trading at a price to free cash flow ratio of 17.4.
As well as its cash generation, Performed Line's balance sheet is solid with little debt and lots of cash. At the end of 2018, the company had a net debt balance of just $7.6 million, compared to overall shareholder equity of $250 million. The net debt-equity balance at the end of the year was only 3%. Meanwhile, book value per share at the end of 2018 was $49.70, which indicates that the stock is currently trading at a price-book value of 1.06 and a price-tangible book value of 1.2. All of these metrics are particularly attractive for value seekers.
Unfortunately, there are no Wall Street analysts for growth for 2019. However, based on the company generating earnings of $4.72 per share last year, and earnings averaging $3.1 per annum per share for the past six years, it's reasonable to say that the firm will earn between $3.1 and $4.7 per share for 2019. This range gives a forward price-earnings ratio of between 16.9 and 11.1 and an average of 14, below the price-earnings ratio of 15 that Graham required for value stocks.
Based on history, it also looks as if the company will distribute 80 cents as a dividend this year, giving a prospective dividend yield of 1.5%.
Disclosure: The author owns no share mentioned.
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