When it comes to stocks, I have a tough time labeling myself as one particular type of investor or another. As soon as I say I love a good story, then it isn't cheap enough. If it is a great value, then I don't see any growth potential.
In the long run, price does matter, but you need to make sure you're buying into something that has a future. If the company isn't around to tell the story, you aren't going to have a price to worry about. I recently ran a screen to find stocks with a low enterprise value / EBITDA multiple, trading at less than 15 times trailing earnings and with minimal debt. I was also looking for companies with some room to run, so I stuck with companies with market caps less than $3 billion. I found some interesting names for sure, but here are three very different companies, each with the potential to be a real bargain.
1. Clean energy at a reasonable price
There's no arguing that alternative energy is a growing market. Fuel Systems Solutions
The stock has declined pretty steadily since mid-April. It seems the company has been generating a hefty portion of its revenues from Italy lately, and there may be some uncertainty about whether or not this can continue. A substantial drop in revenues from Italy would carry all the way to the bottom line, and we all know how much the market hates uncertainty. Still, with an enterprise value /EBITDA multiple of 3.2 and only $15 million in long-term debt on the balance sheet, this is an interesting story that could add some alternative energy to your portfolio.
2. Clothing for kiddos
One of the things that strikes me about children's specialty retailer Gymboree
The Crazy 8 concept is opening the market up to additional price points, and Gymboree's international expansion is on schedule as it opens stores in Australia and the Middle East. To top it off, the company just used a small chunk of its cash on hand to buy back more than 2.2 million shares of its stock. Uncertainty about the recovery has kept a lot of retail stocks on edge lately and Gymboree is no exception, but its balance sheet is pristine with no debt and about $170 million in cash after the buyback. At 4.8 times EV/EBITDA and about 12 times earnings, Gymboree looks like it may be more than just child's play.
3. Safety and security in an emerging economy
You may have already heard of China Fire & Security Group
The company continues to win contracts in China's developing nuclear sector, and management sees "huge potential in retrofitting projects from the iron and steel industry" as well. The stock has been on a roller-coaster ride and is down 40% since mid-May on seemingly no real news. However, this is a Chinese small cap, so be careful. There is a lot of government exposure here, and information may not always be quite what we are used to for our American companies, so extra due diligence is required. Nevertheless, China Fire & Security has attracted quite a following since being discovered here at the Fool.
Currently trading at 10 times trailing earnings with $25 million in cash versus zero debt on the balance sheet, China Fire & Security could go on a hot streak again soon.
As always, these are ideas and not formal recommendations. This should be seen as a starting point for further research. Here we have three very different companies with very different stories. However, each one presents a real potential value if the story stays true. It may be worth digging in a little deeper to see if any of these companies attracts your Foolish nature.
If you want more great stock ideas, Alex Dumortier knows one high-quality stock that belongs at the top of your list.