There are plenty of different ways to determine if a stock is "cheap", for example paying a price-to-earnings (PE) multiple of 30x could turn out to be a cheap price to pay for a stock if it is growing earnings at 50% per annum. Likewise buying stocks selling for a fraction of their asset backing is also a valid way to identify cheapness. The following four stocks meet perhaps the most common form of cheap – that is, they are selling on a low PE multiple.
Nufarm Limited (ASX: NUF) could be described as having survived a near-death experience. At its depths the share price had fallen from around $18 to just $3.50. Things have improved over the past year with the share price currently at $4.88. With Nufarm offering exposure to the global agricultural industry, it certainly has appeal for those who look favourably on the thematic of China's growing demand for food.
According to consensus data provided by Morningstar, earnings per share (EPS) are forecast to increase from a current 28.1 cents per share (cps) to 41.2 cps in FY 2016. This equates to a FY 2016 PE of 11.8x.
Thorn Group Ltd (ASX: TGA) may be best known for its Radio Rentals and Rentlo store network but it is its financing divisions which are most appealing. With the finance businesses experiencing good levels of growth, EPS are forecast to increase from 18.9 cps in FY 2014 to 22.7 cps in FY 2016. With the share price trading at $2.48, the forecast PE is 10.9x.
Skilled Group Ltd. (ASX: SKE) is a provider of staffing solutions to both public and private sectors. Its exposure to the resource sector has created a headwind for the group in recent years. Judging by analyst consensus it would appear the worst is well-and-truly behind the group with EPS of 27.2 cps forecast in FY 2016. Based on a current share price of $2.28, this equates to a PE of 8.4x.
Fantastic Holdings Limited (ASX: FAN) is a leading manufacturer and retailer of household furniture, with a focus on sofas. The company is leveraged to stronger housing data and provides investors with good exposure to the home building theme. With EPS forecast to almost double by FY 2016 to 15.8 cps, the stock is trading on a PE of 10.4x.
All four of these stocks hold appeal for investors who shy away from paying high multiples on the expectations of high levels of earnings growth. At the same time, unlike some low-priced stocks which may be declining, these four have relatively good long-term prospects.
