Undervalued companies, such as Appliance Recycling Centers of America and Gulf Resources, trade at a price less than their true values. 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.
Appliance Recycling Centers of America, Inc. (NASDAQ:ARCI)
Appliance Recycling Centers of America, Inc., together with its subsidiaries, sells and recycles household appliances through a chain of company-owned retail stores under the ApplianceSmart name. Formed in 1976, and now led by CEO Tony Isaac, the company employs 441 people and with the company’s market capitalisation at USD $6.53M, we can put it in the small-cap group.
ARCI’s shares are now hovering at around -41% under its value of $1.54, at a price of US$0.91, based on its expected future cash flows. The mismatch signals a potential chance to invest in ARCI at a discounted price. Moreover, ARCI’s PE ratio stands at 1.19x against its its Specialty Retail peer level of, 18.39x suggesting that relative to its comparable set of companies, we can purchase ARCI’s shares for cheaper. ARCI is also a financially robust company, with short-term assets covering liabilities in the near future as well as in the long run. The stock’s debt-to equity ratio of 15.07% has been reducing for the last couple of years signifying its capability to reduce its debt obligations year on year. More on Appliance Recycling Centers of America here.
Gulf Resources, Inc. (NASDAQ:GURE)
Gulf Resources, Inc., through its subsidiaries, manufactures and trades in bromine, crude salt, chemical products, and natural gas in China. The company size now stands at 715 people and with the market cap of USD $72.08M, it falls under the small-cap category.
GURE’s shares are currently floating at around -92% lower than its true level of $20.01, at a price of US$1.56, according to my discounted cash flow model. This mismatch signals an opportunity to buy GURE shares at a discount. Moreover, GURE’s PE ratio stands at 2.33x compared to its Chemicals peer level of, 19.58x meaning that relative to its comparable set of companies, GURE can be bought at a cheaper price right now. GURE is also a financially healthy company, with short-term assets covering liabilities in the near future as well as in the long run. GURE also has a miniscule amount of debt on its balance sheet, which gives it headroom to grow and financial flexibility. More on Gulf Resources here.
Yirendai Ltd. (NYSE:YRD)
Yirendai Ltd. operates as an online consumer finance marketplace that connects borrowers and investors primarily in the People’s Republic of China. Founded in 2012, and currently headed by CEO Yihan Fang, the company now has 911 employees and with the company’s market cap sitting at USD $2.26B, it falls under the mid-cap group.
YRD’s shares are now hovering at around -65% lower than its real value of ¥109.41, at the market price of US$37.79, based on its expected future cash flows. The difference between value and price signals a potential opportunity to buy YRD shares at a discount. In addition to this, YRD’s PE ratio is trading at 11x while its Consumer Finance peer level trades at, 13.88x suggesting that relative to its comparable company group, we can invest in YRD at a lower price. YRD is also strong financially, as current assets can cover liabilities in the near term and over the long run. YRD also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Continue research on Yirendai here.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.