The TSX stocks we’ve discovered have PEG ratios of less than 1.0, suggesting they are undervalued relative to their earnings growth prospects
SmallCapPower | March 27, 2019: The Price/Earnings to Growth Ratio (PEG) is defined as the price to earnings ratio of a stock (P/E) divided by its estimated future earnings growth. The P/E ratio is a stock’s share price divided by its earnings per share (EPS). The PEG ratio can be calculated as PE ratio/estimated EPS growth. Sometimes the P/E ratio does not convey the intrinsic value of a stock as a mature company may have a low P/E ratio if future earnings growth is weak. Companies that are growing quickly usually have higher P/E multiples but may not be generating cash flow. The PEG ratio is typically used by investors to discount the discrepancy between growth and value-based investing frameworks. A PEG ratio of 1.0 implies a fairly-valued company; more than 1.0 means the company is overvalued, and under 1.0 means the company is undervalued. Today we have identified four TSX stocks that could be considered undervalued with PEG ratios under 1.0. We used the next twelve months (NTM) PEG ratios as the basis for our screen. For reference, the average NTM PEG ratio for the 43 companies in our screen is 3.7.
*Share prices are as at close March 25, 2019, data obtained from S&P Capital IQ
Exco Technologies Limited (TSX:XTC) – $9.34
Machinery
Exco Technologies designs, develops, and manufactures dies, molds, components & assemblies, and consumable equipment for the die-cast, extrusion, and automotive industries. The Company has two primary business segments: Casting and Extrusion, and Automotive Solutions. On January 31, Exco reported its FQ1/19 results: EPS was $0.24 on revenues of $142.0M. EPS matched consensus estimates while revenues was a slight beat ($141.0M, estimate). The Company also announced that it would pay a quarterly dividend of $0.09, with an implied annual dividend yield of 1.0%.
- PEG Ratio: 0.63
- Market Cap: $395.3 Million
- YTD Return: 3.4%
- 90-Day Average Trading Volume: 41,000
Badger Daylighting Ltd. (TSX:BAD) – $40.34
Construction and Engineering
Badger Daylighting is a provider of non-destructive excavating services. The Company provides services for contractors and facility owners in the utility and petroleum industries. The Company rents and sells various lines of trench shielding used to shore and strengthen trenches, provides sewer inspection services and provides general vacuum truck & auxiliary services to the Oil and Gas industry. The Company pays a $0.045 monthly divided, $0.54 per share on an annualized basis (annual dividend yield: 1.3%). On March 12, Badger announced Q4/18 results: EPS was $0.63 on revenues of $178.6M, which respectively beat the Street consensus of $0.54 and $156.0M.
- PEG Ratio: 0.58
- Market Cap: $1,447.4 Million
- YTD Return: 24.7%
- 90-Day Average Trading Volume: 186,000
Roots Corporation (TSX:ROOT) – $3.99
Retail – Apparel
Roots is a Canadian lifestyle brand founded in 1973. The Company was initially inspired by the Canadian outdoors and has evolved into a complete lifestyle brand with a unique collection of premium apparel, leather goods, accessories, and footwear. Roots products are distinguished by their characteristics style, comfort, functionality, and versatility. As such, the brand enjoys widespread popularity among students, young professionals, families, athletes, entertainers, and influencers. Roots operates 116 retail stores in Canada, 109 partner-operated stores in Taiwan, 27 partner-operated stores in China and four retail stores in the United States.
- PEG Ratio: 0.58
- Market Cap: $168.1 Million
- YTD Return: 27.6%
- 90-Day Average Trading Volume: 123,000
Aecon Group Inc. (TSX:ARE) – $17.88
Construction and Engineering
Aecon is a Canadian construction and infrastructure development company. The Company has four business segments: Infrastructure, Energy, Mining, and Concessions. Within the Infrastructure segment the Company bids on both public and private infrastructure projects. Aecon offers services to the Energy and Mining sectors, including construction and manufacturing services. The Concessions segment includes development, financing, construction, and operation of infrastructure projects. On March 14, the Company announced a partnership to explore renewable energy with the Marten Falls First Nation in Ontario’s Ring of Fire region. This news comes on the heels of the Company’s Q4/18 results: EPS was $0.41 on revenues of $948.5M. EPS was lower than consensus estimates of $0.46, while revenues beat estimates of $775.0M. This was partially due to higher increases from the Company’s infrastructure and concessions segments.
- PEG Ratio: 0.38
- Market Cap: $1,081.4 Million
- YTD Return: 1.0%
- 90-Day Average Trading Volume: 264,000
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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