Frank Sands' Low PE Stocks

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Mar 30, 2015

Frank M. Sands, Jr., CFA, is chief executive officer and chief investment officer of Sands Capital Management, an investment management firm focused on investing in quality growth businesses throughout the world.

Sands Capital believes that over time stock prices reflect the earnings growth of their underlying businesses. Their team is dedicated to identifying the relatively small number of truly exceptional growth businesses that they expect to own for many years.

Based on Frank Sands (Trades, Portfolio)’ portfolio, Twenty-First Century Fox Inc (FOXA), National Oilwell Varco Inc. (NOV) and Southwestern Energy Co. (SWN) are the companies with the lowest P/E ratio (and under the value of 10.00).

Twenty-First Century Fox Inc (FOXA)

The media and entertainment company's segments includes Cable Network Programming, Television, Filmed Entertainment and Direct Broadcast Satellite Television. The Cable Network Programming consists of the production and licensing of programming distributed through cable television systems, direct broadcast satellite operators and telecommunication companies primarily in the U.S., Latin America, Europe and Asia.

Sands started to buy FOXA in Q3 of 2014 and so far he has reached a total of 5,084,116 shares at an average price of $35.4 with a current loss of 5%.

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The company is currently trading with a P/E (ttm) of 8.20 at lower levels of both, Industry Median (average of 48.00) and history (minimum of 2.97).

The Profitability is rated 7/10 with a ROE of 52.46%, a ROA of 17.17% and a ROC of 127.04%. All these ratios are at all-time highs and at best levels of the Global Media – Diversified Industry.

The Financial Strength is rated 6/10 with a Cash to Debt of 0.53 that is better than 70% of other FOXA’s competitors.

 Current Level Industry Median History Best Level
P/E (ttm) 8.20 48.00 2.97
ROA 17.17% 3.07% 17.17%
ROE 52.46% 6.54% 52.46%
ROC (J. Greenblatt) 127.04% 19.72% 132.66%
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Cash to Debt 0.53 0.53 No Debt.

Over the last five years, the Revenue grew by 2.50% and the Free Cash Flow by 11.70%. Over the last 12 months, the company faced a strong growth on EBITDA (+67.60%) and on EPS (+88.10%). The Book Value didn’t face big change in the last five years (-0.10%) while in the last 12 months it has a growth +18%.

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The company looks fairly priced based on the Peter Lynch Earnings Line that gives a value of $29.9 (-13.7%), Undervalued based on the Discounted Cash Flow Model that gives a fair value of $62.99 (a margin of safety of +46% and Undervalued based on the Fair Value Votes that with 4 total votes gives a value of $40.45 (a margin of safety of 17%).

National Oilwell Varco Inc. (NOV)

The company is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services and supply chain integration services to the upstream oil and gas industry.

Sands started to buy NOV in Q2 of 2012 and so far he has reached a total of 708,816 shares at an average price of $69.13 with a current loss of 29%.

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The company is currently trading with a P/E (ttm) of 8.60 at lower levels of both, Industry Median (average of 17.30) and history (minimum of 3.86).

Profitability is rated 7/10 with a ROE of 11.53%, a ROA of 7.28% and a ROC of 40.04%. All these ratios are at average level of NOV history and at best levels of the Global Oil & Gas Equipment & Services Industry.

Financial Strength is rated 6/10 with a Cash to Debt of 1.12 that is better than 85% of other NOV’s competitors.

 Current Level Industry Median History Best Level
P/E (ttm) 8.60 17.30 3.86
ROA 7.28% 3.56% 12.65%
ROE 11.53% 7.15% 24.27%
ROC (J. Greenblatt) 40.04% 11.44% 179.53%
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Cash to Debt 1.12 0.42 6.93

Over the last five years, the Revenue Grew by 12.40% and the Free Cash Flow declined by -4.30%. Over the last 12 months, the company faced a good growth on Revenue (+10.30%), on EPS (+6.40%) and on EBITDA (+9.40%). The Book Value faced strong growth in the last five years (+9.00%) while in the last 12 months it had a negative growth of -7.40%.

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The company looks fairly priced based on the Peter Lynch Earnings Line that gives a value of $46.2 (-10%), Undervalued based on the Discounted Cash Flow Model which gives a fair value of $164.83 (a margin of safety of +70% and Undervalued based on the Fair Value Votes that with 28 total votes gives a value of $103.61 (a margin of safety of 52%)

Southwestern Energy Co. (SWN)

The company is an independent energy company mainly engaged in natural gas and crude oil exploration, development and production within the United States. It is also engaged in natural gas gathering and marketing businesses, which it refers to as Midstream Services.

Sands started to buy SWN in Q2 of 2012 and so far he reached a total of 594,235 shares at an average price of $35.57 with a current loss of 37%.

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The company is currently trading with a P/E (ttm) of 8.50 at bottom levels of history (minimum of 8.50).

Profitability is rated 7/10 with a ROE of 22.63%, a ROA of 9.34% and a ROC of 15.17%. All these ratios are at best levels of both SWN history and industry ().

Financial Strength is rated 6/10 with a Cash to Debt of 0.01 which is an average ratio for the Global Oil & Gas E&P Industry but is at the worst levels of SWN history.

 Current Level Industry Median History Best Level
P/E (ttm) 8.50 n/a 8.50
ROA 9.34% -1.09% 13.55%
ROE 22.63% -1.29% 27.34%
ROC (J. Greenblatt) 15.17% 1.06% 26.12%
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Cash to Debt 0.01 0.42 2.24

Over the last five years, the Revenue Grew by +11.20%, the Free Cash Flow by +38.40% and the Book Value by 10.90%. Over the last 12 months, the growth is getting even better, with Revenue (+19.40%), EPS (+31.00%) and Book Value (+10.90%).

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The company looks overpriced based on the Peter Lynch Earnings Line that gives a fair value of $3.8 (-487%), Undervalued based on the Discounted Cash Flow Model which gives a fair value of $38.65 (a margin of safety of +42% and Undervalued based on the Fair Value Votes that with three total votes gives a value of $39.05 (a margin of safety of 43%)