For the article I will be highlighting Energy companies that are undervalued based on their PEGY ratio. For a little background the PEGY ratio, it is simply the PE ratio of a stock divided by that stocks expected Dividend Growth + Its Dividend Yield. An example below: A stock is trading at a PE ratio of 20, is expected to grow earnings at 20%, and has a 5% dividend yield.
The goal is take the PEG ratio a step further to factor in dividends into the equation to see which companies are undervalued not just based on earnings growth but also factoring in dividend yield. The data I will be using will be from Finviz.com which is where I will screen for Energy companies, then use the data found there and enter it into a spreadsheet and calculate PEGY ratio’s for each company. In addition to broad items like average volume, sector etc, I wanted to use other metrics like earnings growth this year and projected for next year because I wanted to make sure I included companies that were growing earnings now, and projected to grow earnings in the future.
Finviz Screener Criteria
Sector: Basic Materials
Dividend Yield: Positive
EPS Growth Next 5 years: Positive
PE: Profitable
Forward PE: Profitable
Country: USA
Average Volume: Over 1 Million Shares
Market Cap: Over $10 Billion
EPS Growth this year: Positive
EPS Growth Next year: Positive
EPS Growth Qtr over Qtr: Positive
Data Table
For my calculation of the PEGY ratio I used the data from the table below. The smaller the PEGY ratio the more undervalued the company is.
Observations
From my observation of the table I find that there were 4 companies that had a PEGY ratio of less than 1 meaning that by that metric they are undervalued, and could warrant further research into those names. The overall point of this article was to search for undervalued Energy companies using a ratio that is not used in the mainstream investment world, and in doing so hopefully gives a better view of undervalued companies rather than just using a simple PE ratio.
By. Brad Kenagy
Disclaimers:
The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.
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The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications or other transactions costs, which may significantly affect the economic consequences of a given strategy.
This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.
