3 stocks with low PEG ratios

When looking for bargain opportunities, investors can look for stocks with 12-month price-to-earnings and forward growth ratios of 1.5 or less, which is the historical average PEG ratio of the S&P 500.

The PEG ratio is calculated as the price/earnings ratio excluding non-recurring items divided by the growth rate of Ebitda over five years. For banks and credit service 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-to-earnings ratio without NRI divided by the expected future growth rate of earnings per share, which is a projection for the next five years based on analyst estimates.

The three stocks listed below meet the above criteria. Wall Street also issued positive recommendation ratings for these stocks, meaning analysts expect stock prices to rise in the coming months.

Target

The first company making the cut is Target Corp. (TGT, Financial), a Minneapolis-based operator of approximately 2,000 discount stores in the United States where consumers can find a wide assortment of defensive consumer goods, including groceries, apparel, home products, toys and electronic devices.

In early trading on July 26, Target has a stock 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%. So, the trailing 12-month PEG ratio is 0.89 and the forward PEG ratio is 0.64.

Since the stock price has fallen 42.06% in the past year, the market cap now stands at $69.63 billion and the 52-week range is $137.16 to $268.98.

GuruFocus gave a rating 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 an overweight median recommendation rating with an average target price of $181.67 per share.

Etsy

The second company to qualify is Etsy Inc. (ETSY, Financial), a Brooklyn, New York-based operator of online marketplaces for North American and international customers.

In early trading on July 26, Etsy has a stock price of $92.98 and a price-to-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%. So, 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 cap is $11.82 billion and the 52-week range is $67.01 to $307.75.

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GuruFocus gave a rating 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 an overweight median recommendation rating 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 firm offering securities brokerage, banking, custodial and financial advisory services.

In 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%. So, the trailing 12-month PEG ratio is 0.95 and the forward PEG ratio is around 1.08.

After an 8.37% decline over the past year, the market cap is $117.13 billion and the 52-week range is $59.35-$96.24.

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GuruFocus gave a rating 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 an overweight median recommendation rating with an average target price of $85.64 per share.

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