Amdocs Ltd (NASDAQ:DOX): A Prime Value Pick with Strong Fundamentals and Undervalued Potential

Amdocs Ltd (NASDAQ:DOX) stands out as a possible choice for value investors, found through a screening process that highlights stocks with solid fundamentals but lower market prices. The screening method looks for companies with a ChartMill Valuation Rating above 7, meaning they trade below their true value, while also having good scores in profitability, financial stability, and growth. This matches the ideas of value investing, where investors look for stocks priced less than their real worth, offering safety and potential for long-term gains.

Valuation: A Core Part of Value Investing

The main idea of value investing is finding stocks priced below their true value. Amdocs has a 7 out of 10 in ChartMill’s Valuation Rating, showing it may be a good time to buy. Key numbers that support this include:

• A Price/Earnings (P/E) ratio of 12.33, much lower than the industry average of 35.08 and the S&P 500’s 26.99. This means the stock is priced low compared to its earnings.
• A Price/Forward Earnings ratio of 11.01, cheaper than 84% of its IT Services peers, confirming its low price.
• An Enterprise Value/EBITDA ratio that beats 77% of competitors, further proving its discounted value.

These numbers are important for value investors, as they show a possible gap between the stock’s market price and its real financial performance, a sign of undervalued opportunities.

Profitability: Reliable Earnings Strength

Amdocs has a Profitability Rating of 7, showing good operational efficiency and earnings quality:

• Return on Invested Capital (ROIC) of 13.74% beats 84% of industry peers, showing smart use of capital.
• Operating Margin of 16.62% is in the top 14% of the sector, pointing to strong cost control.
• Steady profitability over the last five years, with positive cash flows and earnings, lowers the risk of losses.

For value investors, high profitability means the company can maintain and increase its true value over time, making it a safer choice even if the market stays slow in the short term.

Financial Health: A Stable Base

With a Health Rating of 6, Amdocs shows a balanced financial setup:

• A low Debt/Equity ratio of 0.19 puts it in the top 38% of the industry, meaning little risk from debt.
• An Altman-Z score of 4.87 shows low risk of bankruptcy, backed by strong solvency numbers.
• A Debt-to-Free Cash Flow ratio of 1.07 means the company could pay off its debt in just over a year, showing financial flexibility.

Financial health is key for value investors, as it ensures the company can handle economic challenges and keep creating value for shareholders.

Growth: Steady but Not Fast

Amdocs’ Growth Rating of 4 reflects slow but stable expansion:

• EPS growth of 11.36% YoY and an 8.36% 5-year CAGR show steady earnings improvement.
• Revenue growth, though modest at 2.40% YoY, is consistent and backed by a varied service portfolio in communications and media IT.

While not a fast-growing stock, Amdocs’ reliability fits with value investing’s focus on steady, predictable returns instead of risky momentum plays.

Why This Matters for Value Investors

The mix of low valuation, strong profitability, and solid financial health makes Amdocs an attractive pick for value-focused portfolios. Its low pricing suggests the market may not fully appreciate it, while its operational strength offers safety, key parts of Benjamin Graham’s value investing approach.

For more details on Amdocs’ fundamentals, check the full Fundamental Analysis Report.

Find More Undervalued Stocks

Amdocs was found using a systematic screen for undervalued stocks with good fundamentals. To find similar opportunities, try the Decent Value Stocks Screen on ChartMill.

Disclaimer: This article is not investment advice. Always do your own research or talk to a financial advisor before making investment decisions.