St Ives(LSE: SIV) is currently trading at a forward P/E of 9.3, which looks cheap. Moreover, the company has nearly doubled earnings per share over the past five years.
But is St Ives really an undiscovered gem or is it cheap for a reason?
Well, there are two things that lead me to believe that investors may be avoiding St Ives for a reason. Firstly, the company has a weak balance sheet. St Ives current ratio currently stands at 0.7, implying that the company cannot cover all liabilities falling due within 12 months.
Secondly, St Ives main line of business, printing and publishing, is in decline, and it seems as if investors are avoiding the company for this reason. Group revenue has fallen by around 10% over the past five years.
Still, the company is expanding into other markets. St Ives expansion into other digital markets has helped push up gross profit by around 40% over the same period.
Multiple problems
Just like St Ives, newspaper publisherTrinity Mirror(LSE: TNI) isunder pressure from the falling sales of printed publications.
In fact, Trinity Mirrors own management warned three years ago that the newspaper businesscould cease to exist by 2030.
Whats more, the companys current pension deficit is greater than 500m. And, it has become clear over the past year or so that Trinity Mirror was deeply involved in the phone-hacking scandal.
Nevertheless, at present the company is trading at a forward P/E of only 5.7 and price to book value of only 0.8. So, for those willing to take the risk, this looks to be a classic cigar butt deep-value play.
Changing business
Connect(LSE: CNCT) is yet another company thats suffering from the decline in physical book and magazine sales. The company is the leading distributor of books and newspapers in the UK, and sales have been underpressure for some time now.
However, the group is expanding into new, high-margin markets. While sales have stagnated over the past five years, pre-tax profit has risen by 90% over the same period.
In addition, Connects management has put the companys dividend payout at the top of its agenda.
The company supports a dividend yield of 5.7% and has increased the payout in line with inflation every year since 2009. The payout is covered twice by earnings per share. Connect currently trades at a forward P/E of 8.9.
Connects pre-tax profits are set to rise by a third over the next two years. All in all, the company looks to be an undervalued income stock.
Gaming company
Gaming company,GVC Holdings(LSE: GVC) currently trades at a forward P/E of 8.8. This low valuation has more to do with the unpredictable nature of the companys business than anything else. GVC has a cash-rich balance sheet and pays out the majority of its profits to investors.
GVCs shares have supported an average dividend yield of around 10% per annum for the last five years.
Weak balance sheet
At first glance,Wincanton(LSE: WIN) looks to be a bargain. The company is trading at a forward P/E of 9.4, earnings are expected to grow by 5% this year and the company is trading at a 2016 P/E of 8.8.
But if you take a look under the bonnet, Wincanton is trading at this depressed valuation for a reason.
Based on Wincantons latest set of results and financial figures, the companys current ratio stands at around 0.7 anything below one indicates that the companys current assets dont cover all liabilities falling due within 12 months.
Whats more, Wincantons shareholder equity is negative. In other words, the companys liabilitiesare greater than its assets not the mark of a health company. On that basis, its easy to conclude that Wincanton is a value trap.
Lack of growth
Unfortunately, there’s one thing that these fivecompanies all lack, and that’s growth.
But if it’s growth you’re looking for, then have theperfect stock for you. Indeed, we believethat this companyhas the potential to drive a three-fold increase in salesin just five years — that’s an impressive rate of growth you’ll be hard pressed to find elsewhere.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended GVC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.