When searching for bargain opportunities, investors may want to look for stocks whose trailing 12-month and forward price-earnings to growth ratios are 1.5 or below, which is the S&P 500's historical average PEG ratio.
The PEG ratio is calculated as the price-earnings ratio without non-recurring items divided by the five-year Ebitda growth rate. For banks and credit services companies, the five-year book value growth rate is used instead of the Ebitda growth rate.
The forward PEG ratio is calculated as the price-earnings ratio without NRI divided by the expected future earnings per share growth rate, which is a projection for the next five years based on analysts' estimates.
The three stocks listed below meet the above criteria. Wall Street has also issued positive recommendation ratings for these stocks, meaning analysts expect higher share prices over the coming months.
Target
The first company that makes the cut is Target Corp. (TGT, Financial), a Minneapolis-based operator of approximately 2,000 discount stores in the U.S. where consumers can find a large assortment of consumer defensive goods, including groceries, apparel, home products, toys and electronics.
As of early trading on July 26, Target has a share price of $149.79 and a price-earnings ratio of 12.46. The historical five-year Ebitda growth rate is 14% and the estimated future five-year earnings growth rate is 19.59%. Thus, the trailing 12-month PEG ratio is 0.89 and the forward PEG ratio is 0.64.
Since the share price has dropped by 42.06% over the past year, the market capitalization now stands at $69.63 billion and the 52-week range is $137.16 to $268.98.
GuruFocus assigned a score of 6 out of 10 for the company's financial strength and 8 out of 10 for its profitability.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $181.67 per share.
Etsy
The second company that qualifies is Etsy Inc. (ETSY, Financial), a Brooklyn, New York-based operator of online marketplaces for North American and international customers.
As of early trading on July 26, Etsy has a share price of $92.98 and a price-earnings ratio of 30.87. The historical five-year Ebitda growth rate is 75.10% and the estimated future five-year earnings growth rate is 39.95%. Thus, the trailing 12-month PEG ratio is 0.41 and the forward PEG ratio is 0.77.
Due to a 53.44% decline over the past year, the market capitalization is $11.82 billion and the 52-week range is $67.01 to $307.75.
GuruFocus assigned a score of 6 out of 10 for the company's financial strength and 7 out of 10 for its profitability.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $114.95 per share.
Charles Schwab
The third company that meets the criteria is The Charles Schwab Corp. (SCHW, Financial), a Westlake, Texas-based wealth and asset management company offering securities brokerage, banking, custody and financial advisory services.
As of early trading on July 26, Charles Schwab has a price of $61.74 and a price-earnings ratio of 20.32. The historical five-year book value growth rate is 21.50% and the estimated future five-year earnings per share growth rate is 18.88%. Thus, the trailing 12-month PEG ratio is 0.95 and the forward PEG ratio is approximately 1.08.
Following an 8.37% decrease over the past year, the market capitalization is $117.13 billion and the 52-week range is $59.35 to $96.24.
GuruFocus assigned a score of 3 out of 10 for the company's financial strength and 6 out of 10 for its profitability.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $85.64 per share.
