Low P/E Relative Stocks With Potential for Growth

This First Cut lists the 20 exchange-listed U.S. companies with the lowest current price-earnings relatives compared to their five-year averages.

The price-earnings (P/E) ratio, or earnings multiple, is one of the most widely used measures of stock valuation. Value investors often seek companies with low price-earnings ratios, hoping to identify stocks that are undervalued because of market neglect or an overreaction to negative news.

The price-earnings relative helps investors determine whether a company’s valuation has strayed from its historical relationship with the broader market.

The price-earnings relative is calculated by dividing a company’s price-earnings ratio by the market’s price-earnings ratio. A value of 1.0 indicates that the company and the market trade at the same earnings multiple. Companies with stronger growth prospects are generally expected to command higher price-earnings ratios, resulting in price-earnings relatives above 1.0.

Different market benchmarks can be used to calculate the price-earnings relative. This month’s First Cut uses the median price-earnings ratio of all U.S.-traded stocks, currently 18.8. Comparing a firm’s current price-earnings relative to its five-year average price-earnings relative helps identify stocks trading at unusually low valuations relative to their historical relationship with the market. A stock can appear relatively undervalued even when its price-earnings ratio exceeds that of the market.

This First Cut lists the 20 exchange-listed U.S. companies with the lowest current price-earnings relatives compared to their five-year averages. To help avoid companies facing deteriorating earnings, the screen requires projected earnings-per-share growth in the near term. The table includes annual price-earnings ratios to highlight valuation trends and unusual years that may distort historical averages. Companies must also have a 52-week relative strength rank of at least 50, identifying potentially undervalued stocks with above-average price strength.

The price-earnings relative approach assumes that a company’s fundamentals and its relationship to the broader market have remained reasonably consistent over time. Investors should evaluate whether a company’s historical price-earnings relative remains an appropriate benchmark for its current and future prospects.

Stock Investor Pro Screening Criteria

	Field:	Operator:	Factor:	Compare to:
	Exchange	Not Equal		Over the counter
And	ADR/ADS Stock	Is		False
And	Price MO60	>		0
And	Country	Contains		United States
And	Price	>		5
And	PE-Average Y1	<		50
And	PE-Average Y2	<		50
And	PE-Average Y3	<		50
And	PE-Average Y4	<		50
And	PE-Average YS	<		50
And	EPS Est Y0	>		0
And	EPS Est Y1	>		0
And	EPS Est Y1	>		EPS Est Y0
And	EPS Est Y0	>		EPS-Diluted Continuing Y1
And	% Rank-Rel Strength 52 week	>=		50
And	PE Relative Current	<		PE Relative Avg-5 year
Custom Field
PE Relative Current	= [PE]/18.8	Where 18.8 is the current median PE ratio of all stocks in the SI Pro data set*
First run the "Statistical Summary - Entire Database" report selecting the Multiples view to be printed. Note the median PE presented in the Statistical Summary. It was 18.8 at the time we ran the screen.