What are low priced stocks? Are penny stocks low priced? In stock investing it is important to define ‘low price’. General understanding is, Rs.100 IS greater than Rs.50.
But it can be different in case of stock investing. A stock which is trading at Rs.100 can be considered cheaper than a stock trading at Rs 50.
This is a reason why expert investors never looks at market price of stocks in isolation. The trading price that we see can often be very misleading. This is one reason why expert investors always perform ‘stock valuation’ before buying one.
It is the result of stock valuation that one can identify Rs.100 stock as cheaper than Rs.50 stock.
Low priced stocks are those stocks which are trading at discount to its intrinsic value. But it is not easy to estimate intrinsic value of stocks.
There is an easier alternative available to check if stocks can be tagged as low priced stocks. We can use financial ratios to evaluate if a stock is trading at cheaper price.
These financial ratio is a great tool for common people who are not very conversant with analyzing financial statements.
Which financial ratios can be used to identify low priced stocks?
Price Earnings Ratio (P/E)
Price earnings ratio (P/E) is one of the most used valuation tool in stock market. It compares market price of stock (P) with its Earning Per Share (E). As a rule of thumb, P/E ratio multiple of 15 is considered reasonable.
Price Earnings Ratio = P/E
P=Market Price, E=(PAT-Dividend Paid on Preference Shares)/(No. of Shares)
Price to Book Value (P/B)
Price to book value (P/B) is again one of the most followed financial ratio of stock market. It compares market price of stock (P) with total shareholder’s equity per share / book value per share (B). As a rule of thumb, P/B ratio multiple of 1.5 is considered reasonable.
Price to Book Ratio = P/B
P=Market Price, B=Book Value per Share / Net Worth Per Share = (Share capital + Reserves)/No. of Shares).
Dividend Yield (D/P)
Dividend yield is one of the most reliable stock valuation tool available for investors. It compares market price of stock (P) with dividend/share paid to shareholders(D). As a rule of thumb, D/P multiple of more than 0.03 (3%) can considered reasonable.
Dividend Yield = D/P
P=Market Price, D=Dividend paid per share in last FY.
PEG ratio is an extension of P/E ratio of stocks. We discussed that P/E ratio of less than 15 is considered reasonable. But in calculation of PEG, companies earning growth rate (EPSG) is considered for valuation.
A fast growing company will be considered reasonable even it P/E is high. As a rule of thumb, PEG multiple of less than 1 is considered reasonable. If purpose is to find low priced stocks, PEG ratio is one of the most reliable tool.
Price Earning Growth Ratio = (P/E)/EPSG
P=Market Price, E=(PAT-Dividend Paid on Preference Shares)/(No. of Shares), EPSG=Earning Per Share Growth Rate in last 3 year (5year growth can also be considered).
Price to Sales (P/S) Ratio
Price to sales ratio is same as P/E ratio. Here instead of using earning as comparator one uses sales turnover. Companies PAT figures can be manipulated in financial statements. But sales turnover is hard to manipulate.
These days expert investors consider P/S ratio as more authentic than P/E ratio. Low P/S ratio will provide better valued stock than a low P/E stock. As a rule of thumb, P/S multiple of less than 1.5 is considered reasonable.
If purpose is to find low priced stocks, P/S ratio is a very good tool.
Price to Sales Ratio = P/S
P=Market Price, S=Sales Turnover.
Price to Dividend (P/Div) Ratio
Like price to sales ratio, Price to dividend ratio is another parameter which cannot be manipulated easily in financial statements. Here one can use ‘dividend per share’ paid to shareholder’s as a comparator.
Comparing dividend per share with market price of stocks can give great insight in terms of valuation. Investors consider P/Div ratio as one of the most reliable valuation ratio.
Price to Dividend Ratio= P/Div
P=Market Price, Div=Dividend Per Share.
Conclusion – What are Low Price Stocks?
Low price stocks are not those stocks which trade at double-digit market price. In investment terms, low price stocks are those stocks which are undervalued. Famous stocks like Apple, Microsoft, Google, Exxon Mobil etc are hardly available at undervalued price levels. Experts investors keep track of such famous stocks. Market price of these famous companies must be tracked. But looking only at price is not useful. Comparing market price of stocks with its sales, earnings (Profit), earning growth, net worth, operating cash Flow etc gives great insights. Tracking high market cap stocks with help of these ratios will certainly help investors to tap ‘quality undervalued stocks’.
Low Priced Stocks in India in 2017
|SL||Company name||Market Cap. (RS.)||Current Market Price (Rs.)||52W Low Price||P/E||P/B||P/S||Div. Yield (%)|
|1||Reliance Infrastructure Ltd||136.11B||516.0||426.5||9.40||0.58||0.54||1.65|
|2||Tech Mahindra Ltd||385.85B||396.7||357.6||12.54||2.09||1.31||2.30|
|3||Oil India Limited||219.55B||289.7||258.0||8.49||0.88||2.65||5.58|
|4||Bharat Heavy Electricals Limited||355.26B||145.4||116.2||11.42||1.08||1.25||1.10|
|5||Union Bank of India||107.82B||157.2||116.3||4.09||0.44||1.02||1.25|
|6||Coal India Ltd||1.59T||256.0||243.0||17.27||6.29||1.93||8.01|
|8||Irb Infrastructure Developers Ltd||76.32B||216.5||177.5||10.63||1.43||1.29||2.33|
|11||Tata Power Company Limited||225.85B||83.5||67.1||30.29||1.68||0.80||1.58|
|12||Torrent Power Ltd||88.42B||183.3||159.0||20.54||1.26||0.86||1.22|
|13||Indian Oil Corporation Limited||1.82T||375.3||248.5||35.54||1.77||1.19||5.41|
|14||Punjab and Sind Bank||22.44B||55.9||46.0||11.11||0.36||0.81||3.00|
|15||Great Eastern Shipping Company Ltd||61.84B||407.1||321.3||8.15||0.85||1.97||2.48|
|16||Bharat Petroleum Corp Ltd||1.02T||469.8||372.7||160.70||3.30||0.74||3.52|
|17||Vardhman Textiles Ltd.||67.51B||1,176.7||955.0||9.79||1.56||1.10||1.29|
|18||HCL Technologies Ltd||1.24T||894.7||717.0||15.56||3.80||2.73||2.73|
|19||Reliance Capital Limited||167.59B||660.3||398.6||15.36||1.10||0.97||1.49|
|20||Tata Chemicals Limited (Parent)||160.18B||628.0||445.5||18.64||2.01||1.19||1.77|
|21||JSW Energy Ltd||103.85B||64.1||53.5||16.57||0.98||1.23||0.80|
|22||Bajaj Auto Ltd||816.56B||2,817.1||2,817.1||19.98||4.59||3.55||1.94|
|24||Hindustan Petroleum Corporation Limited||581.67B||384.0||243.4||42.93||2.66||0.51||2.08|
|25||NLC India Ltd||158.38B||104.5||71.0||12.03||1.32||2.87||2.86|
|27||Tamil Nadu Newsprint & Papers Limited||24.30B||350.0||260.0||9.16||1.37||0.76||2.22|
|28||E.I.D-Parry (India) Ltd||56.77B||321.9||222.0||10.95||2.08||0.39||1.23|
|29||IL&FS Transportation Networks Ltd||31.33B||95.2||65.9||21.92||0.74||0.39||2.13|
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