Stocks, such as 3i Group and Persimmon, are trading at a value below what they may actually be worth. There’s a few ways you can determine how much a company is actually worth. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. The discrepancy between the price and value means investors have an opportunity to buy shares at a discount. Below are the stocks I believe are undervalued on all criteria, based on their latest financial data.
3i Group plc (LSE:III)
3i Group plc is a private equity firm specializing in direct and fund of fund investments. Established in 1945, and currently lead by Simon Borrows, the company currently employs 244 people and has a market cap of GBP £8.73B, putting it in the mid-cap category.
III’s shares are currently trading at -38% less than its intrinsic level of £14.59, at a price of UK£9.09, based on my discounted cash flow model. This discrepancy gives us a chance to invest in III at a discount. In terms of relative valuation, III’s PE ratio stands at around 5.99x compared to its Capital Markets peer level of, 15.43x meaning that relative to its comparable company group, you can buy III’s shares at a cheaper price. III also has a healthy balance sheet, as near-term assets sufficiently cover liabilities in the near future as well as in the long run. Finally, its debt relative to equity is 8.19%, which has been dropping over time, signalling III’s capability to reduce its debt obligations year on year. More on 3i Group here.
Persimmon Plc (LSE:PSN)
Persimmon Plc, together with its subsidiaries, operates as a house builder in the United Kingdom. Started in 1972, and now led by CEO Jeffrey Fairburn, the company provides employment to 4,713 people and with the stock’s market cap sitting at GBP £7.96B, it comes under the mid-cap stocks category.
PSN’s stock is currently trading at -43% lower than its true level of £44.76, at a price tag of UK£25.49, based on its expected future cash flows. This mismatch indicates a potential opportunity to buy low. Also, PSN’s PE ratio is trading at 10x relative to its Consumer Durables peer level of, 10.19x implying that relative to its comparable company group, you can buy PSN’s shares at a cheaper price. PSN is also robust in terms of financial health, as current assets can cover liabilities in the near term and over the long run. PSN also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. More on Persimmon here.
Moss Bros Group plc (LSE:MOSB)
Moss Bros Group PLC, together with its subsidiaries, retails and hires formal wear for men primarily in the United Kingdom. Founded in 1851, and currently headed by CEO Brian Brick, the company employs 956 people and with the market cap of GBP £48.69M, it falls under the small-cap group.
MOSB’s shares are now floating at around -36% beneath its intrinsic value of £0.74, at the market price of UK£0.47, based on my discounted cash flow model. The divergence signals an opportunity to buy MOSB shares at a low price. Moreover, MOSB’s PE ratio stands at around 8.86x while its Specialty Retail peer level trades at, 12.81x implying that relative to its comparable set of companies, you can buy MOSB’s shares at a cheaper price. MOSB is also a financially healthy company, with current assets covering liabilities in the near term and over the long run. MOSB also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Interested in Moss Bros Group? Find out more here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.