With these articles, I want to highlight all the companies that according to GuruFocus have a predictable business and are undervalued according to the Price/DCF (Average). I also apply another filter to those results to give you just the companies that have a significant EPS growth rate.
When a company is undervalued but earnings are growing, we can believe that sooner or later Mr. Market will take care of the price.
World Acceptance Corp(WRLD)
The company provides short-term small loans, medium-term larger loans, related credit insurance products and ancillary products and services to individuals.
The stock has a business predictability of 5 Stars and is currently trading at 10.10 of P/E +47.11% from its 52-Week Low and -2.01% from its 52-week high. Over the past 12 months, the price rose by 19%.
The Peter Lynch earnings line gives a fair value of $158.1 with a margin of safety of 40%; the DCF model gives a fair value of $329.95 that put the stock as undervalued and with a margin of safety of 71% at current prices.
During the last 5 years, EPS grew by 21.20% (20.50% during the last 10 years and 6.60% over the last 12 months), revenue grew by 17.60% and EBITDA by 19.90%
Profitability & Growth is rated 8/10 and returns are ranked higher than 78% of other companies in the Global Credit Services industry. A ROE of 36.61%, a ROA of 12,53% and a ROC of 32.25% are a good proof about the ability of the company to make money year over year.
Columbia Wanger is the main guru holding WRLD with 1,038,842 shares (10.9% of shares outstanding, or 0.41% of total assets of its portfolio.
CF Industries Holdings Inc (CF)
The company is a manufacturer and distributor of nitrogen and phosphate fertilizer products.
The stock has a business predictability of 4.5/5 (on watch) and is currently trading at 16.70 of P/E +28.58% from its 52-Week Low and -4.56% from its 52-week high. Over the past 12 months, the price rose by 22%.
The Peter Lynch earnings line gives a fair value of $402.5 with a margin of safety of 25%; the DCF model (adjusted with an EPS’ growth rate of 30% over the next 5 years) gives a fair value of $409.51 that put the stock as undervalued and with a margin of safety of 26% at current prices.
During the last 5 years, EPS grew by 38.20%, revenue grew by 12.50% and EBITDA by 28.00%. Over the last 12 months every growth rate is dropping (EPS by 41%, EBITDA by 33%) so it's better to keep an eye on results of the next quarters.
Profitability & Growth is rated 8/10 and returns are ranked higher than 94% of other companies in the Global Agricultural Inputs industry. CF has positive returns that are ranked higher than 85% of competitors (ROE of 20.55%, ROA of 7.83%, ROC of 30.22%)
John Burbank is the main Guru of CF. It holds 1,250,000 shares (2.61% of shares outstanding) or 8.7% of his total portfolio.
NeuStar Inc (NSR)
The company is a provider of real-time information services and analytics to help its clients promote and protect their businesses.
The stock has a business predictability of 5 stars and is currently trading at 9.40 of P/E +56.18% from its 52-Week Low and -9.90% from its 52-week high. Over the past 12 months, the price rose by +9%.
The Peter Lynch earnings line says the company is fairly valued; the DCF model, gives a fair value of $87.40 that put the stock as undervalued and with a margin of safety of 67% at current prices.
Profitability & Growth is rated 9/10 and returns are ranked higher than 94% of other companies in the Global Telecom Services industry. Returns are positive (ROA of 10.56%, ROE of 30.31%, ROC of 145.23%) and the business is growing steadily over the past 10 years (revenue +20%, EBITDA +20%, EPS +21%); these growth rates are confirmed during the last 5 years and even during the last 12 months.
PRIMECAP Management, with 6,756,896 shares is the main holder of NSR (it holds 12.2% of shares outstanding or 0.19% of total assets of its portfolio)
Conclusions
All these companies had a price increase over the last 12 months, and this good performance is confirmed by strong and positive returns that should make every investor hopeful for the near future. The only doubt is CF, which is facing some difficulties during the last 12 months.
I don't hold any of the above mentioned companies, what about you? Do you have one, two or even all of them in your portfolio? Are they on your watch list?
