A stock that you can buy at a price below what it is worth is considered undervalued. This is the case for consumer staple stocks Telford Homes and DFS Furniture. There’s a few ways you can measure the value of a company – you can forecast how much money it will make in the future and base your valuation off of this, or you can look around at its peers of similar size and industry to roughly estimate what it should be worth. Below, I’ve created a list of companies that compare favourably in all criteria based on their most recent financial data, making them potentially good investments.
Telford Homes Plc (AIM:TEF)
Telford Homes Plc engages in the housebuilding and property development businesses in the United Kingdom. Founded in 2000, and run by CEO Jonathan Di-Stefano, the company size now stands at 238 people and with the company’s market capitalisation at GBP £308.95M, we can put it in the small-cap category.
TEF’s stock is currently hovering at around -23% beneath its real value of £5.42, at a price of UK£4.18, based on my discounted cash flow model. The discrepancy signals an opportunity to buy low. Additionally, TEF’s PE ratio stands at around 11.5x compared to its index peer level of, 16.7x suggesting that relative to its competitors, TEF can be bought at a cheaper price right now. TEF is also strong in terms of its financial health, with near-term assets able to cover upcoming and long-term liabilities. Finally, its debt relative to equity is 45.96%, which has been dropping for the past few years demonstrating its capacity to reduce its debt obligations year on year. More detail on Telford Homes here.
DFS Furniture plc (LSE:DFS)
DFS Furniture plc designs, manufactures, sells, delivers, installs, and retails a range of sofas, upholstered furniture, and other living room furniture products. Founded in 1969, and currently headed by CEO Ian Filby, the company currently employs 4,200 people and with the stock’s market cap sitting at GBP £385.22M, it comes under the small-cap stocks category.
DFS’s stock is currently floating at around -47% below its intrinsic level of £3.45, at a price of UK£1.84, based on its expected future cash flows. This mismatch indicates a potential opportunity to buy low. Furthermore, DFS’s PE ratio is trading at around 9.85x against its its Consumer Durables peer level of, 11.5x meaning that relative to its comparable company group, you can buy DFS’s shares at a cheaper price. DFS is also in good financial health, as near-term assets sufficiently cover liabilities in the near future as well as in the long run. It’s debt-to-equity ratio of 85.27% has been diminishing over time, showing DFS’s capacity to pay down its debt. Interested in DFS Furniture? Find out more here.
McCarthy & Stone plc (LSE:MCS)
McCarthy & Stone plc, together with its subsidiaries, operates as a retirement housing market in the United Kingdom. Formed in 1977, and now led by CEO Clive Fenton, the company provides employment to 2,264 people and with the company’s market capitalisation at GBP £769.99M, we can put it in the small-cap group.
MCS’s stock is now floating at around -68% beneath its actual level of £4.59, at a price tag of UK£1.45, based on my discounted cash flow model. The difference between value and price signals a potential opportunity to buy MCS shares at a discount. Moreover, MCS’s PE ratio stands at around 10.49x against its its Consumer Durables peer level of, 11.5x meaning that relative to other stocks in the industry, we can invest in MCS at a lower price. MCS is also a financially robust company, as current assets can cover liabilities in the near term and over the long run.
More detail on McCarthy & Stone here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks. Or create your own list by filtering AIM and LSE companies based on fundamentals such as intrinsic discount, health score and future outlook using this free stock screener.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.