Is the Dixons Carphone share price too cheap?

Everybody knows that Dixons Carphone (LON:DC.) has been navigating some tough headwinds for some time, with people increasingly purchasing their electronics from online giants like Amazon. But, with its forecast dividend yield currently larger than its forecast PE ratio, might the market have overreacted to this mid cap's prospects?

Stacks of academic research covering different time frames and regions of the world all come to the same conclusion: over time and on average, cheap stocks outperform expensive stocks.

This sounds so glaringly simple and obvious. So, how come we're not all rich?

The fact is cheap shares are often cheap for a reason. They can look unappetising, but therein lies opportunity.

Stockopedia’s Value Rank is made up of the following simple valuation ratios:

• Price to Book Value
• Price to Earnings
• Price to Free Cash Flow
• Dividend Yield %
• Price to Sales
• Earnings Yield %

How does Dixons Carphone stack up?

Dixons Carphone's Value Rank

We can see by using Dixons Carphone’s StockReport that the group has a:

• Rolling price to book value of 0.52,
• Rolling price to earnings ratio of 5.86
• Trailing twelve-month price to free cash flow of 20.0
• Rolling dividend yield of 6.08%
• Trailing twelve-month price to sales ratio of 0.13

When we add all of these together, we find that Dixons Carphone has a Value Rank of 85. Investing in high-value stocks requires finesse and a sturdy constitution but, when cheap stocks come good, the payoff can be large and sudden.

Dixons Carphone’s Value Rank of 85 puts it in the cheapest quartile of the stock market. That is certainly a promising jumping off point for our analysis but it is not the whole story.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Currys that you can find out about here.