Investors will swear by any number of different techniques to find undervalued stocks, whether it's technical analysis or crunching the numbers inside financial filings. The truth is, there's no one single methodology that guarantees to find undervalued opportunities.
There are a number of different metrics used to calculate value, e.g. price-to-book or price-to-earnings ratios. But we decided to take a somewhat different tack, instead comparing current stock price to average analyst target price (used as a proxy for fair value).
Financial analysts usually issue a target price for a stock along with a "sell," "hold," or "buy" recommendation, reflecting what they deem to be its fair market value. The average target price is calculated by taking the mean of a group of analysts' individual target prices. When a stock trades below this average target price, we considered it to be trading at a discount to its fair market value.
Not that this is a fail-safe approach by any means -- you'll still need to do your homework on your investments. Use this list as a starting point for you to do your own research.
As a secondary screening method, we narrowed down our universe of stocks according to company buyback volume. Share repurchases offer a pretty strong signal that company management believes its stock to be undervalued. And companies with buyback programs in place also offer the added bonus of higher earnings per share, as well as improved financial ratios.
The following list of stocks are undervalued relative to their average target prices, and have all announced stock buybacks over recent weeks. Do you think these are undervalued? (Click here to access free, interactive tools to analyze these ideas.)
Target price data sourced from Finviz, buyback data sourced from RTT News. The list has been sorted by the discount to average analyst target price.
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Company
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Buyback Program
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Valuation
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Cninsure (Nasdaq: CISG )
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On 12/3 the company announced a buyback program of $100M, representing about 12% of its market cap
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Current price at $18.3 vs. average analyst target price of $27.4 (implies a discount of -33.21%)
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NANOMETRICS (Nasdaq: NANO )
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On 11/29 the company announced a buyback program of $10M, representing about 4% of its market cap
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Current price at $12.22 vs. average analyst target price of $17.25 (implies a discount of -29.16%)
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Service Corp. International (NYSE: SCI )
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On 11/11 the company announced a buyback program of $200M, representing about 10% of its market cap
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Current price at $8.02 vs. average analyst target price of $11 (implies a discount of -27.09%)
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Gleacher & Company (Nasdaq: GLCH )
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On 10/27 the company announced a buyback program of $25M, representing about 7.75% of its market cap
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Current price at $2.37 vs. average analyst target price of $3.25 (implies a discount of -27.08%)
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Strayer Education (Nasdaq: STRA )
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On 10/28 the company announced a buyback program of $150M, representing about 7% of its market cap
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Current price at $118.83 vs. average analyst target price of $159.25 (implies a discount of -25.38%)
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Select Medical Holdings Corporation (NYSE: SEM )
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On 11/4 the company announced a buyback program of $100M, representing about 9% of its market cap
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Current price at $7.21 vs. average analyst target price of $9.5 (implies a discount of -24.11%)
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Cirrus Logic (Nasdaq: CRUS )
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On 11/4 the company announced a buyback program of $80M, representing about 6.5% of its market cap
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Current price at $17.52 vs. average analyst target price of $22.5 (implies a discount of -22.13%)
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Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
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