Most people would identify as being a 'value' investor. Being an 'expensive' investor would probably lead to poor returns.
But what does being a value investor mean?
Does it mean buying shares at a low price/earnings ratio or a significant discount to its net tangible assets? Does it mean buying shares at 52-week or multi-year lows? Or does it just mean buying a quality stock cheaper than its recent high?
I don't think there's a single answer. I like the price/earnings ratio because it's an easy way to compare all shares, so this is the ratio I have used for the below three shares:
Greencross Limited (ASX: GXL)
Greencross is Australia's largest pet business with its Greencross Vet and Petbarn chains.
There are a lot of reasons to like pet-related businesses. The pet population is growing alongside the human population. A lot of us take our furry children to the vet at least once a year. We are more willing to buy toys and treats. Pet insurance is becoming more popular so the vet bills can be taken care of.
Greencross in-particular has a strong strategy of co-locating Greencross vets inside Petbarns, which saves on costs and allows both businesses to cross-sell to each other's customers.
Greencross is trading at 13x FY18's estimated earnings with a grossed-up dividend yield of 4.57%.
Retail Food Group Limited (ASX: RFG)
Retail Food Group isn't my favourite stock but that doesn't mean it can't be a market-beater from this price.
Retail Food Group is the master franchisor of a variety of food chains such as Brumby's, Gloria Jeans, Cafe2U and Donut King. Some of its chains have struggled to grow revenue, which is a worry for long-term success.
However, the parent company has successfully kept growing the bottom line and earnings per share for shareholders. It has sustainably kept increasing the dividend too.
Retail Food Group is trading at 12x FY16's earnings with a grossed-up dividend yield of 8.44%.
Collins Foods is best known for being a large KFC franchisee. KFC is not as widespread as McDonald's in many regions of the world including Australia and Europe. Luckily, this is where Collins Foods is expanding.
Management have recently started acquiring KFC restaurants in Europe, which gives the business huge growth potential over many years to come.
Collins Foods is trading at 21x F17's earnings with a grossed-up dividend yield of 4.03%.
Foolish takeaway
It's hard to say which one will generate the largest total returns for shareholders. At the current prices, I like Greencross the most due to its attractive industry and clever strategies for growth.
