The price-to-earnings ratio is one of the simplest and most popular ratios used to value companies on the ASX.
At present the average price-to-earnings multiple for the entire market stands at 16x according to CommSec. In theory a share that commands a higher earnings multiple will have stronger-than-average earnings growth prospects, whereas a share that trades on a lower earnings multiple will have lower-than-average expectations for earnings growth.
That's why the shares of hyper growth companies like Aconex Ltd (ASX: ACX) change hands at 77x earnings and the shares of slow growing Asaleo Care Ltd (ASX: AHY) are priced at just 12x earnings.
With that in mind, here are three shares which I think could be classed as cheap right now:
Mantra Group Ltd (ASX: MTR)
At a touch under 17x estimated FY 2017 earnings and expected to provide a fully franked 4% dividend over the next 12 months, I believe Mantra could prove to be a bargain buy for investors that are willing to make a long-term buy and hold investment. Especially with Australia experiencing a tourism boom presently. As more and more tourists flock to Australia, I expect Mantra will see higher occupancy levels and an increase in the average room rate. This could result in higher than average levels of earnings growth.
Mayne Pharma Group Ltd (ASX: MYX)
Although price-fixing allegations and concerns over President Trump's impact on the industry have weighed heavily on Mayne Pharma's share price, I believe this has created an opportunity for bargain hunters to snap up its shares at a great price. At present its shares are changing hands at 15x estimated FY 2017 earnings, which is both a significant discount to the rest of the healthcare industry and cheap for its strong growth prospects.
Vocus Group Ltd (ASX: VOC)
At 14x trailing earnings this fast-growing telco company actually trades on a lower earnings multiple than slow-growing Telstra Corporation Ltd (ASX: TLS). Although the company has been plagued by boardroom fallouts and concerns over NBN margins, I believe the 50% drop in its share price in the last six months has been an overreaction. I think Vocus has a bright future ahead of it thanks to the NBN rollout and this is an opportunity to snap up its shares at a bargain price.
