Real Money's Paul Price thinks that Alliance Data Systems (ADS) – Get Report isn’t just underpriced. It’s “ready to rumble.”
Over on RealMoney, Price writes, “Alliance Data Systems used to be a market darling, carving out an all-time peak of $312 back in 2015. Earnings per share that year came to $15.05 putting the price-to-earnings at 20.7-times.” Read the full column and get more of his trading insights.
Results have been choppy since then, Price notes, but consensus views for 2021's earnings per share now focus on $15.55, a bit higher than in 2015.
ADS is up 22% so far this year, and closed Friday just above $90. Price notes buyers at this level are paying less than six times this year's estimate rather than north of 20 times. There were no cash dividends paid in 2015. This year, shareholders will receive $0.84.
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Earnings per share, otherwise know as price-to-earnings, represents how much a company has earned relative to its share price. Basically, how much money does this company have vs. how much money are people willing to pay for it? It might sound technical, but this metric is essential to evaluating a good stock. It’s particularly essential when it comes to figuring out if a stock is undervalued.
In a nutshell, lower earnings per share can indicate a stock that the market has overlooked. The higher that EPS figure climbs, the more likely it is that the market has gotten too excited for the stock’s value.
Price believes that as a stock, ADS has definitely become undervalued: “From 2013 through 2019, ADS averaged about 14.4-times earnings. Annual highs during those seven years ran from $183 to $312.
“Even a partial reversion-to-the-mean valuation adjustment could easily support a move back to north of $172 by this time next year.”
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