Last week the top performing stock in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) was Monadelphous Group Limited (ASX: MND) which gained 24.84%; the index meanwhile added a solid 2.8%.
Surprisingly, the surge in this highly-regarded engineering service provider came despite a complete lack of news from the company. In fact, the only announcement made to the stock exchange last week was a response to the "please explain" speeding ticket which Monadelphous received from the ASX's compliance department.
While a surge in share price such as this will lead to suggestions of potential corporate activity and perhaps a suitor in the wings, it's also possible that it's just old fashioned buying by investors who believe they've spotted a bargain.
With Monadelphous recently hitting a new 52-week low of just $7.87 – down from a 52-week high of $19 – and with consensus data provided by Morningstar forecasting earnings per share (EPS) in the current financial year (FY) of 117.5 cents per share (cps), the stock was trading on a price-to-earnings (PE) ratio of just 6.7x prior to this week's rally.
Although it must be noted that a further decline in earnings is forecast for the 2016 financial year, arguably at levels sub $8 the stock was too cheap despite the difficult operating environment facing the mining services sector.
The renewed interest in Monadelphous could signal that it's time for enterprising investors to start trawling though the mountain of discarded mining service stocks that continue to languish at multi-year lows. Here are two stocks that could be worth a closer look…
- Downer EDI Limited (ASX: DOW) is expected to have relatively flat EPS over the next couple of years with 45.4 cps forecast for FY 2015. With the stock currently trading at $4.71 this implies a PE of 10.4x.
- Leighton Holdings Limited (ASX: LEI) is in fact forecast to grow earnings from the current year to FY 2016. Based on FY 2015 expectations the stock is trading on a PE of 15.4x.
