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3 Stocks Trading Near Their Earnings Power Values

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When ascertaining whether a stock is reasonably priced, undervalued or overvalued, some investors refer to the Earnings Power Value (EPV) metric, an estimate of intrinsic value.

The EPV was designed by Bruce Greenwald, a professor at Columbia University and well-known value investor, with the target to bypass several problems regarding the assumptions that discounted cash flow valuation models usually implicate. The EPV is calculated by dividing the adjusted earnings by the weighted average cost of capital.


The following three stocks do not appear overvalued, as their share prices are trading close to or below their respective EPVs.

GMS Inc

The first stock that qualifies is GMS Inc (NYSE:GMS), a Tucker, Georgia-based plasterboard, ceilings systems and other complementary materials provider for North American builders.

GMS Inc's earnings power value is $29.03 (as of April 29), which, compared to the share price of $23.56 at close on Thursday, yields a margin of safety of 18.85%.

As a result of a 7.6% share price increase which occurred over the past year, the market capitalization is $1 billion and the 52-week range is $10.39 to $32.42.

GuruFocus has assigned a score of 4 out of 10 to the company's financial strength and of 6 out of 10 to its profitability.

Wall Street sell-side analysts issued an overweight recommendation rating for this stock, with an average target price of $28.43 per share.

Ethan Allen Interiors Inc

The second stock that meets the criteria is Ethan Allen Interiors Inc (NYSE:ETH), a Danbury, Connecticut-based interior design and home furnishings retailer in North America and internationally.

Ethan Allen Interiors Inc's earnings power value of $32.77 (as of March 30) is more than 2.5 times the share price of $12.29 at close on Thursday, determining a margin of safety of 62.5%.

Following a 33.2% share price fall in the past year, the market capitalization now trades at around $307.9 million and the 52-week range is $8.38 to $23.11.

GuruFocus has assigned a rating of 6 out of 10 to both the company's financial strength and profitability.

Wall Street sell-side analysts issued a hold recommendation rating for this stock and have established an average target price of $12 per share.

County Bancorp Inc

The third stock that makes the cut is County Bancorp Inc (NASDAQ:ICBK), a Manitowoc, Wisconsin-based holder of Investors Community Bank, which provides various banking services to individuals and commercial clients in northeastern and central Wisconsin.

County Bancorp Inc has an earnings power value of $24.82 as of June 29, which yields a margin of safety of 21.6% as it is lower than the share price of $19.46 at close on Thursday.

As a result of a 9.5% increase in the share price over the past year, the market capitalization trades is $124.06 million and the 52-week range is $13.55 to $27.98.

GuruFocus has assigned a financial strength rating of 2 out of 10 and a profitability rating of 4 out of 10 to the company.

Wall Street sell-side analysts issued an overweight recommendation rating for this stock and have produced an average target price of $22.75 per share.

Disclosure: I have no position in any security mentioned.

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This article first appeared on GuruFocus.