Value investors are constantly scanning for companies where the market price doesn't reflect the underlying business strength. A core part of this strategy, as outlined in the foundational work of Benjamin Graham, involves finding stocks where the market value is lower than the calculated intrinsic value, providing a "margin of safety." The approach isn't just about buying cheap stocks; it’s about buying quality businesses at a discount. A useful starting point for this search is a 'Decent Value' screen, which filters for stocks that combine a low valuation with solid fundamentals in profitability, health, and growth. This method helps avoid the dreaded "value trap" where a stock appears cheap for a reason—like deteriorating earnings or looming debt issues. Instead, it targets companies that may be temporarily out of favor but have the financial backbone to recover and grow.
EVERTEC INC (NYSE:EVTC) emerges from such a screen with a strong profile. The company is a transaction processor and payment technology firm, operating the ATH network in Latin America and providing services to financial institutions, merchants, and government agencies. Based on the detailed fundamental analysis report, EVTC scores an overall 6 out of 10, but the most striking feature is its valuation rating of 8 out of 10, signaling a potentially significant discount.
Valuation and Growth: The Core of the Opportunity
The main reason to consider EVTC as an undervalued stock lies in the combination of its low valuation and solid growth trajectory.
- Valuation Metrics: EVTC is trading at a Price/Earnings (P/E) ratio of just 7.07. This is significantly cheaper than 74.75% of its peers in the Financial Services industry and a fraction of the S&P 500 average P/E of 26.63. The forward P/E is even lower at 5.83, suggesting the market expects continued earnings growth.
- PEG Ratio: The low P/E ratio is not just a static snapshot; it is supported by growth. The PEG (Price/Earnings to Growth) ratio, which accounts for expected earnings growth, confirms the valuation is cheap relative to the company's future prospects.
- Growth Ratings: The company earns a Growth rating of 6/10, with solid historical performance. Over the past years, earnings per share (EPS) have grown at an average annual rate of 11.66%, and revenue has grown by 12.78% per year. Looking forward, analysts expect EPS to grow by 10.79% annually, with revenue growth of 10.98%.
For a value investor, this combination is key. You are not buying a struggling company; you are buying a growing business at a low multiple, which provides a significant margin of safety. If the growth continues, the current undervaluation should correct itself over time.
Profitability and Health: The Foundation of Stability
The 'Decent Value' screen does not just look for cheap stocks; it filters for financial stability. A cheap stock with poor profitability or excessive debt is a value trap. EVTC passes this test with a moderate, but stable, foundation.
- Profitability: With a Profitability rating of 6/10, EVTC shows it can generate consistent returns. Its Return on Equity (ROE) of 19.85% places it in the top 17% of its industry, indicating efficient use of shareholder capital. Its operating margin of 20.33% is also strong compared to peers.
- Financial Health: The Health rating stands at a neutral 5/10, which is a cautious signal. The Altman-Z score of 1.85 puts the company in a "grey zone" with limited bankruptcy risk, but it is better than 77.78% of its industry peers.
- The Debt Issue: The company has a Debt-to-Equity ratio of 1.60, which is on the higher side and indicates some reliance on debt financing. However, the payout ratio is a very sustainable 9.57%.
- The Offset: Critically, the company has been reducing its share count over the past one and five years, which is a strong signal of management confidence. Furthermore, its current and quick ratios of 1.97 are very healthy, outperforming nearly 80% of its industry peers, meaning it can easily cover its short-term liabilities.
The debt level is a point to monitor, but the strong operating cash flow and healthy liquidity ratios suggest the company can manage its leverage effectively. The fact that it is creating value (ROIC above WACC) adds another layer of comfort.
Analyst Views and Market Context
The broader market context supports a positive view. The S&P 500's long-term and short-term trends are both positive, providing a favorable backdrop for undervalued stocks to be discovered by the market. While specific analyst price targets are not detailed in the report, the fundamental data itself paints a picture of a company that is priced for caution but performing with reliable growth.
Beyond One Stock: Finding More Decent Value
While EVTC presents a strong candidate for a value-oriented portfolio—with its low P/E of 7.07, steady double-digit earnings growth, and strong liquidity—it is just one example. The method used to find it is repeatable. You can explore the broader set of opportunities that meet these same criteria by running your own 'Decent Value' screen.
Click here to access the full 'Decent Value Stocks' screen and see the latest results.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own research and consider your financial situation before making any investment decisions.
Read full article here »
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EVERTEC Inc (NYSE:EVTC): A Decent Value Play with Low P/E and Solid Growth
Value investors are constantly scanning for companies where the market price doesn't reflect the underlying business strength. A core part of this strategy, as outlined in the foundational work of Benjamin Graham, involves finding stocks where the market value is lower than the calculated intrinsic value, providing a "margin of safety." The approach isn't just about buying cheap stocks; it’s about buying quality businesses at a discount. A useful starting point for this search is a 'Decent Value' screen, which filters for stocks that combine a low valuation with solid fundamentals in profitability, health, and growth. This method helps avoid the dreaded "value trap" where a stock appears cheap for a reason—like deteriorating earnings or looming debt issues. Instead, it targets companies that may be temporarily out of favor but have the financial backbone to recover and grow.
EVERTEC INC (NYSE:EVTC) emerges from such a screen with a strong profile. The company is a transaction processor and payment technology firm, operating the ATH network in Latin America and providing services to financial institutions, merchants, and government agencies. Based on the detailed fundamental analysis report, EVTC scores an overall 6 out of 10, but the most striking feature is its valuation rating of 8 out of 10, signaling a potentially significant discount.
Valuation and Growth: The Core of the Opportunity
The main reason to consider EVTC as an undervalued stock lies in the combination of its low valuation and solid growth trajectory.
For a value investor, this combination is key. You are not buying a struggling company; you are buying a growing business at a low multiple, which provides a significant margin of safety. If the growth continues, the current undervaluation should correct itself over time.
Profitability and Health: The Foundation of Stability
The 'Decent Value' screen does not just look for cheap stocks; it filters for financial stability. A cheap stock with poor profitability or excessive debt is a value trap. EVTC passes this test with a moderate, but stable, foundation.
The debt level is a point to monitor, but the strong operating cash flow and healthy liquidity ratios suggest the company can manage its leverage effectively. The fact that it is creating value (ROIC above WACC) adds another layer of comfort.
Analyst Views and Market Context
The broader market context supports a positive view. The S&P 500's long-term and short-term trends are both positive, providing a favorable backdrop for undervalued stocks to be discovered by the market. While specific analyst price targets are not detailed in the report, the fundamental data itself paints a picture of a company that is priced for caution but performing with reliable growth.
Beyond One Stock: Finding More Decent Value
While EVTC presents a strong candidate for a value-oriented portfolio—with its low P/E of 7.07, steady double-digit earnings growth, and strong liquidity—it is just one example. The method used to find it is repeatable. You can explore the broader set of opportunities that meet these same criteria by running your own 'Decent Value' screen.
Click here to access the full 'Decent Value Stocks' screen and see the latest results.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own research and consider your financial situation before making any investment decisions.
Read full article here »