When screening for worthwhile investment opportunities in a market where the S&P 500’s long-term and short-term trends are both positive, it can be tempting to chase momentum. However, value investors take a different route. Instead of buying what’s hot, they look for solid companies trading below their intrinsic worth. The basic premise, rooted in the work of Benjamin Graham, is that the market often misprices a stock in the short term due to sentiment, not fundamentals. By buying these undervalued names and holding them, investors hope to profit as the price eventually aligns with the underlying business reality.
One method to systematically find such candidates is to run a “Decent Value” screen. This approach filters for stocks that score highly on valuation (typically a ChartMill Valuation rating above 7 out of 10), while still maintaining decent scores for profitability, financial health, and growth. The logic is simple: you want a company that is cheap, but not cheap for a bad reason. You want to avoid the classic value trap—where a low price reflects a deteriorating business. Instead, you are looking for a temporary disconnect between market perception and business quality.
A stock currently flashing these characteristics is PEDIATRIX MEDICAL GROUP INC (NYSE:MD). As a provider of physician services for women, babies, and children, Pediatrix operates a network of over 4,400 affiliated clinicians across hospital-based neonatal intensive care units (NICUs) and office-based practices.
Why MD Meets the “Decent Value” Criteria
To understand why this stock might appeal to a value investor, we need to look at the specific ratings from its fundamental analysis report. The stock scores an overall rating of 6 out of 10, but it is the composition of those sub-scores that makes it interesting.
Here is the breakdown of the relevant ChartMill ratings:
- Valuation Rating: 8/10 (Excellent)
- Profitability Rating: 7/10 (Good)
- Health Rating: 6/10 (Adequate)
- Growth Rating: 4/10 (Moderate)
Valuation: The Core of the Strategy
The most important filter for a value screen is a high valuation rating, and MD scores an 8. This is the primary reason it was flagged. Looking at the metrics:
- P/E Ratio: The stock trades at a Price/Earnings ratio of 10.99. This is significantly cheaper than the industry average (80.24) and the S&P 500 average (26.87).
- Forward P/E: The Forward P/E of 9.66 suggests earnings are expected to hold steady, further confirming the low valuation.
- EV/EBITDA & P/FCF: The Enterprise Value to EBITDA ratio and the Price to Free Cash Flow ratio both rank MD as cheaper than over 84% of its industry peers.
For the value investor, this is the starting point. It suggests the market is currently pricing this company at a discount compared to its earnings potential and its cash generation.
Profitability: Why the Low Price Might Be a Bargain
A low valuation is meaningless if the company isn't making money. MD’s Profitability rating of 7/10 provides the necessary check. The report highlights:
- Return on Equity (ROE): At 19.83%, this is better than 87.38% of its industry peers. This shows management is effective at generating profit from shareholder equity.
- Return on Invested Capital (ROIC): A current ROIC of 11.22% is not only strong but also higher than its 3-year average of 8.21%, indicating improving effectiveness.
- Margins: Both the Profit Margin (9.02%) and Operating Margin (12.37%) have grown nicely in recent years and are among the best in the industry.
This profitability profile is important for the strategy. It helps confirm that MD is a quality business that is simply being undervalued by the market, rather than a company in fundamental decline.
Health and Growth: The Supporting Factors
While not as strong as the valuation and profitability scores, the Health (6/10) and Growth (4/10) ratings do not disqualify MD as a value play.
- Health: The company carries a moderate amount of debt. The Debt to FCF ratio of 2.49 is reasonable (meaning it would take 2.49 years of free cash flow to pay off all debt), and the number of shares outstanding has been reduced over the past year. The Debt/Equity ratio of 0.45 suggests a balanced capital structure.
- Growth: This is the weakest link. Revenue actually declined by -2.25% over the last year. However, earnings per share (EPS) grew by a strong 32.10% in the same period, showing that cost control and efficiency gains are driving bottom-line results. Looking forward, analysts expect modest top-line growth (3.87% annually) and a pause in EPS growth.
For the value investor, this is acceptable. The strategy relies on the margin of safety provided by the low purchase price relative to current intrinsic value (evidenced by the valuation and profitability), not on rapid growth. A company does not need to be a high-growth story to be a good value investment.
Analyst Perspective and the “Value” Case
In summary, Pediatrix Medical Group appears to be a classic example of a company that is priced for a lackluster future despite possessing solid fundamentals. The market seems to be focusing on the stagnant revenue picture and the debt load, punishing the stock price. However, the underlying profitability—strong margins, high return on equity, and solid cash flow—tells a different story.
Given the current positive trend in the broader market, this could represent the kind of undervalued stock that offers a potential margin of safety. If the company can stabilize its revenue and continue to improve profitability, the current valuation multiples appear too attractive to ignore.
For investors looking to explore further, this specific screening process can be repeated. The screen used to find MD filters for stocks with a high valuation grade, while still requiring adequate health, profitability, and growth.
Find more stocks that fit this “Decent Value” profile by running the screen here.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investments carry risk, including the potential loss of principal. You should consult with a qualified financial professional before making any investment decisions.
Read full article here »
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Pediatrix Medical Group Inc (NYSE:MD): A Decent Value Play in a Bull Market
When screening for worthwhile investment opportunities in a market where the S&P 500’s long-term and short-term trends are both positive, it can be tempting to chase momentum. However, value investors take a different route. Instead of buying what’s hot, they look for solid companies trading below their intrinsic worth. The basic premise, rooted in the work of Benjamin Graham, is that the market often misprices a stock in the short term due to sentiment, not fundamentals. By buying these undervalued names and holding them, investors hope to profit as the price eventually aligns with the underlying business reality.
One method to systematically find such candidates is to run a “Decent Value” screen. This approach filters for stocks that score highly on valuation (typically a ChartMill Valuation rating above 7 out of 10), while still maintaining decent scores for profitability, financial health, and growth. The logic is simple: you want a company that is cheap, but not cheap for a bad reason. You want to avoid the classic value trap—where a low price reflects a deteriorating business. Instead, you are looking for a temporary disconnect between market perception and business quality.
A stock currently flashing these characteristics is PEDIATRIX MEDICAL GROUP INC (NYSE:MD). As a provider of physician services for women, babies, and children, Pediatrix operates a network of over 4,400 affiliated clinicians across hospital-based neonatal intensive care units (NICUs) and office-based practices.
Why MD Meets the “Decent Value” Criteria
To understand why this stock might appeal to a value investor, we need to look at the specific ratings from its fundamental analysis report. The stock scores an overall rating of 6 out of 10, but it is the composition of those sub-scores that makes it interesting.
Here is the breakdown of the relevant ChartMill ratings:
Valuation: The Core of the Strategy The most important filter for a value screen is a high valuation rating, and MD scores an 8. This is the primary reason it was flagged. Looking at the metrics:
For the value investor, this is the starting point. It suggests the market is currently pricing this company at a discount compared to its earnings potential and its cash generation.
Profitability: Why the Low Price Might Be a Bargain A low valuation is meaningless if the company isn't making money. MD’s Profitability rating of 7/10 provides the necessary check. The report highlights:
This profitability profile is important for the strategy. It helps confirm that MD is a quality business that is simply being undervalued by the market, rather than a company in fundamental decline.
Health and Growth: The Supporting Factors While not as strong as the valuation and profitability scores, the Health (6/10) and Growth (4/10) ratings do not disqualify MD as a value play.
For the value investor, this is acceptable. The strategy relies on the margin of safety provided by the low purchase price relative to current intrinsic value (evidenced by the valuation and profitability), not on rapid growth. A company does not need to be a high-growth story to be a good value investment.
Analyst Perspective and the “Value” Case
In summary, Pediatrix Medical Group appears to be a classic example of a company that is priced for a lackluster future despite possessing solid fundamentals. The market seems to be focusing on the stagnant revenue picture and the debt load, punishing the stock price. However, the underlying profitability—strong margins, high return on equity, and solid cash flow—tells a different story.
Given the current positive trend in the broader market, this could represent the kind of undervalued stock that offers a potential margin of safety. If the company can stabilize its revenue and continue to improve profitability, the current valuation multiples appear too attractive to ignore.
For investors looking to explore further, this specific screening process can be repeated. The screen used to find MD filters for stocks with a high valuation grade, while still requiring adequate health, profitability, and growth.
Find more stocks that fit this “Decent Value” profile by running the screen here.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investments carry risk, including the potential loss of principal. You should consult with a qualified financial professional before making any investment decisions.
Read full article here »