Companies, such as Fortescue Metals Group, trading at a market price below their true values are considered to be undervalued. Smart investors can make money from this discrepancy by buying these shares, because they believe the current market prices will eventually move towards their true value. If you’re looking for capital gains in your next investment, I suggest you take a look at my list of potentially undervalued stocks.
Fortescue Metals Group Limited (ASX:FMG)
Fortescue Metals Group Limited engages in the exploration, development, production, processing, and sale of iron ore in Australia, China, and internationally. Established in 2003, and currently lead by Neville Power, the company now has 3,890 employees and with the company’s market cap sitting at AUD A$15.25B, it falls under the large-cap category.
FMG’s stock is currently hovering at around -33% below its true value of $7.27, at a price tag of $4.9, according to my discounted cash flow model. signalling an opportunity to buy the stock at a low price. Additionally, FMG’s PE ratio stands at 5.6x compared to its metals and mining peer level of 14.9x, meaning that relative to its peers, we can purchase FMG’s shares for cheaper. FMG is also strong in terms of its financial health, with short-term assets covering liabilities in the near future as well as in the long run. It’s debt-to-equity ratio of 46% has been dropping over the past couple of years indicating its capability to pay down its debt.
Dicker Data Limited (ASX:DDR)
Dicker Data Limited engages in the wholesale distribution of computer hardware, software, and related products in Australia and New Zealand. Founded in 1978, and currently headed by CEO David Dicker, the company currently employs 404 people and has a market cap of AUD A$471.39M, putting it in the small-cap stocks category.
DDR’s shares are now hovering at around -63% under its actual value of $7.98, at the market price of $2.94, based on its expected future cash flows. This difference in price and value gives us a chance to buy low. In addition to this, DDR’s PE ratio stands at 18.1x relative to its electronic peer level of 21.8x, meaning that relative to its competitors, you can buy DDR’s shares at a cheaper price. DDR is also in great financial shape, with near-term assets able to cover upcoming and long-term liabilities. The stock’s debt-to equity ratio of 134% has been declining over the past couple of years signalling DDR’s capability to pay down its debt.
Shriro Holdings Limited (ASX:SHM)
Shriro Holdings Limited manufactures and distributes kitchen appliances and consumer products in Australia and New Zealand. Formed in 2015, and currently headed by CEO Michael Westrup, the company size now stands at 264 people and with the stock’s market cap sitting at AUD A$154.85M, it comes under the small-cap group.
SHM’s stock is currently trading at -39% beneath its value of $2.68, at a price of $1.63, based on its expected future cash flows. signalling an opportunity to buy the stock at a low price. Additionally, SHM’s PE ratio is around 11.6x relative to its consumer durables peer level of 17.2x, implying that relative to other stocks in the industry, SHM’s shares can be purchased for a lower price. SHM also has a healthy balance sheet, with short-term assets covering liabilities in the near future as well as in the long run.
For more financially sound, undervalued companies to add to your portfolio, you can use our free platform to explore our interactive list of undervalued stocks.
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.