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A Trio of Stocks With Enticing Valuations

In order to unearth stocks that represent reasonably priced strong businesses capable of generating high share price returns, I have screened the market for companies with the following characteristics:

1) Their share prices are trading below or close to the Peter Lynch earnings line.

2) Their return on invested capital (ROIC) surpasses the weighted average cost of capital (WACC), suggesting efficient allocation of financial resources.


3) Wall Street analysts predict that their annual earnings per share will grow more rapidly than the S&P 500 index over the next one to five years.

Sprouts Farmers Market Inc

The first company that meets the above listed criteria is Sprouts Farmers Market Inc (NASDAQ:SFM), a Phoenix, Arizona-based operator of health-focused grocery stores in the United States.

The share price ($24.24 as of May 7) trades near the Peter Lynch earnings line, indicating that the stock is not too expensive.

The stock has a market capitalization of $2.86 billion and a 52-week price range of $13 to $24.55.

Sprouts Farmers Market's ROIC of 8.45% is more than five times the WACC of 1.53%.

Wall Street sell-side analysts predict that Sprouts Farmers Market will see the annual EPS increase by a yearly average of 4.13% over the next five years, beating the S&P 500, which is expected to post 4% EPS growth per year. Analysts recommend holding shares of Sprouts Farmers Market Inc.

SEI Investments Co

The second company that possesses the above listed criteria is SEI Investments Co (NASDAQ:SEIC), an Oaks, Pennsylvania-based asset management company.

The share price ($50.53 as of May 7) currently trades just a little above the Peter Lynch earnings line, which indicates that the stock is not too expensive.

The stock has a market capitalization of $7.48 billion and a 52-week price range of $35.41 to $69.61.

SEI Investments Co's ROIC of 33.53% is more than four times higher than the WACC of 7.75%.

Wall Street sell-side analysts forecast that SEI Investments Co will grow the annual EPS by 12% on average every year over the next five years. Analysts recommend an overweight rating for shares of SEI Investments Co and have established an average price target of $54.75 per unit.

Williams-Sonoma Inc

The third company that possesses the above listed criteria is Williams-Sonoma Inc (NYSE:WSM), a San Francisco-based operator of a multi-channel specialty retailers for the sale of a broad range of home products.

The share price ($66.82 as of May 7) currently trades near the Peter Lynch earnings line, indicating the stock is not expensive.

The stock has a market capitalization of $5.16 billion and a 52-week range of $26.01 to $77.

Williams-Sonoma Inc has a ROIC of 12.49%, which is higher than the WACC of 9.7%.

Wall Street sell-side analysts predict that Williams-Sonoma Inc will grow its EPS by 47.5% next year, while the S&P 500 is expected to post 26% growth. Analysts recommend a hold rating for shares of Williams-Sonoma Inc.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.


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