Each of the three stocks on this list trades for less than the company’s book value, yet they still make money for shareholders in the form of dividends.
There could be a number of reasons for their low prices, such as a poor industry outlook, or they could be so lightly traded that they simply don’t show up on the screens of major institutions. Maybe there are even good reasons why they are hated or ignored; As value investors, it is up to us to determine which cheap stocks are bargains and which are traps.
Aaron’s Company (NAA, Financial) is trading at a discount to its book value; investors can buy it for 6% less than its paper value. The rental and leasing services company is thinly traded with an average daily volume of just 300,000 shares, which may be one reason it is shunned by institutional investors who need significantly more cash.
Based in Atlanta, Georgia, this rent-to-own business has been around since 1955. Aaron’s operates or franchises more than 1,300 stores in 47 US states and Canada. According to their website, “Services are available through multiple channels for approximately 40-50% of the US population who earn less than $50,000 in annual household income.”
The stock is trading with a price-earnings ratio of 6.91, a valuation significantly below that of the market as a whole. The price to sales ratio is low at 0.37 and the price to free cash flow ratio is 20.30. Equity far exceeds long-term debt. This year, earnings have increased by 141% and the EPS growth rate over the past five years is 10%.
Aaron’s pays investors a dividend of 1.87%.
The 5% short float is higher than that of most NYSE stocks and may reflect growing concern about how the possibility of a recession could affect the sector.
Communities of the Century (CCS, Financial) can be purchased at only 97% of its book value. The residential construction company could see its share avoided at the moment due to fears of a recession in the housing market. Either way, with a P/E ratio of just 3.40, it’s definitely on the basement shelf.
Headquartered in Greenwood Village, Colorado, with operations in California, Nevada, North Carolina and 14 other US states, Century defines itself as “a homebuilder at 10”. According to Wallmine, CEO Dale Franceson “now owns at least 458,984 Century Communities Inc. stock units.”
Earnings per share this year are up 135%. The EPS growth record for the past five years is 44.10%. Wall Street expectations for next year’s earnings are lower than those numbers. The company’s long-term debt slightly exceeds its equity. Century’s short float sits at 6%, suggesting some investor concern about the economic outlook for the homebuilding sector.
They pay a dividend of 1.18%. Average daily volume is relatively light at around 500,000 shares, perhaps too light for large investors looking for needed cash.
Eneti (NETI, Financial) is trading at just 28% of its book value. The Monaco-based shipping company was previously called Scorpio Bulkers and began listing on the New York Stock Exchange in December 2013.
The company took on the new name in February 2021. According to its website, Eneti is “transitioning” from a dry bulk container company to “marine renewable energy, including investing in the next generation of marine vessels. installation of wind turbines.
This year, earnings per share are up 102.30% and the EPS growth rate over the last five years is 15.70%. The price-to-sales ratio is relatively low at 1.74. Eneti’s equity far exceeds the amount of long-term debt.
Investors receive a dividend that yields 0.64% annualized.
Average daily volume is light for a NYSE-listed stock at just 379,000 shares.
It should be noted that the most recent valuations of the company by Wall Street analysts are generally positive. For example, Citigroup (VS, Financial) initiated a “buy” on the company on February 11. On January 21, Jefferies (I F, Financial) changed the title from a “hold” recommendation to a “buy” recommendation.