We recently published a list of 11 Ridiculously Cheap Stocks to Invest in. In this article, we are going to take a look at where Sally Beauty Holdings, Inc. (NYSE:SBH) stands against other ridiculously cheap stocks to invest in.
Just as we hunt for bargains in the commodity market—comparing relative prices, identifying discounted products, and getting the product most valued for our money—investing in the financial market isn’t any different. In both investments, price matters.
In a world of overpriced stocks, spotting the hidden gem is what differentiates a smart investor from an impulsive investor. One who realizes that value isn’t just about what you buy rather it’s more about what you pay, is the one who is likely to identify an overlooked but full of value stock.
Let’s first understand what a cheap stock actually implies. There are two most common interpretations of such a stock. First, a stock may be regarded as a cheap stock if it has a low share price. Second, an undervalued stock is more commonly known as a cheap stock. Our analysis resonates with the second interpretation, that a cheap stock is a stock that is trading below its intrinsic value based on factors like earnings, revenue, or assets. Thus, in the market, investors say it’s “cheap” relative to its true potential, making it a compelling investment.
One such measure to spot a cheap stock is through the forward price-to-earnings ratio. This is a measure used by investors to actually see how much they are paying for each dollar of a company’s earnings. A low P/E can signal an undervalued stock when compared to its competitors, historical average, and broader market average.
A report by Hoover Capital Management (HCM) analyzes the historical performance of value versus growth stocks through the French High Minus Low (HML) factor. The results from 97 years of data, from July 1926 to December 2023, strongly support value investing. The cumulative return of value stocks surpassed growth stocks by an impressive 3,000%. In other words, value investing has delivered a 30 times higher return on growth than growth investing. It can be further reinforced through the research by Economist Victoria Galsband, according to which cheap stocks outperformed growth stocks from 1975 to 2010 in every single G7 country, including Canada, the U.S., Japan, and the leading European countries.
Another report that analyzed the impact of additions or removals of companies from the S&P index on their valuations indicated that, as removals are associated with the undervaluation of the stock and vice versa, many companies removed from the index outperformed the market. A study by Research Affiliates highlighted that stocks taken out of the S&P between 1990 and 2022 outperformed those that were added by more than 5% annually. This provides a compelling case for our view that undervalued stocks, translated to cheap stocks, have a greater probability of yielding higher returns.
Our Methodology:
We have compiled a list of 11 ridiculously cheap stocks through the Finviz screener. In doing so, stocks have been selected that have a lower than 5 price-to-earnings (P/E) ratio. These stocks cover a range of industries, from consumer products to natural resources exploration. These companies are then listed according to their P/E ratios, from highest to lowest.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A customer in a franchised store trying out hair color products.
Sally Beauty Holdings, Inc. (NYSE:SBH)
Forward P/E as of April 17: 4.55
Sally Beauty Holdings, Inc. (NYSE:SBH) is a leading distributor of professional beauty products in the United States. With mainly two segments, Sally Beauty Supply and Beauty Systems Group, the company offers beauty products in major categories like hair care, hair color, styling tools, and nail and skin care. Having almost 50 years of experience in the industry, SBH owns over 4,000 stores globally. The company considers itself on a mission to inspire a more colorful, confident, and welcoming world.
These days, investors are looking for companies that are enhancing margins, expanding e-commerce, and continuously returning capital to shareholders through buybacks. One such company is Sally Beauty Holdings, Inc. (NYSE:SBH), with a solid business model and a strong balance sheet. It is a stock for investors overlooking the short-term noise to capitalize on a ridiculously cheap, cash-generating asset with huge upside potential.
The recurring opportunities to buy the stock at a deep discount are keeping the investors hooked. Sally Beauty Holdings, Inc. (NYSE:SBH) has recently shifted its strategy towards higher margin e-commerce proceeds and product innovation in contrast to store expansion. This is based on the idea that to improve margins, cost controls, and returning excess capital to shareholders must be done.
Setting up distribution channels through Amazon, Walmart, and Instacart was a huge step forward. While the company lagged behind in embracing e-commerce, it is now in the green with decent gains. A recent report suggests that 44% of Sally Beauty Holdings, Inc. (NYSE:SBH) users are new customers, which is noteworthy for a mature business transitioning towards a refined business model.
On that note, Sally Beauty Holdings, Inc. (NYSE:SBH) is leveraging its huge established distribution network, supplier relationships, and current brand image to elevate profit margins in the years ahead. The core competency revolves around successfully partnering with existing e-commerce powerhouses to reach a much wider customer base online. Based on the one-year price target, SBH is expected to witness a growth of about 63.56%. It is among the best cheap stocks to buy.
Overall, SBH ranks 11th on our list of ridiculously cheap stocks to invest in. While we acknowledge the potential of cheap stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than SBH but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.