Under the Radar: Hunting Smart in the Alleyway of Value and Growth

One of the biggest challenges in investing is finding stocks that combine the best of both worlds: the long-term upside of growth and the downside protection of solid fundamentals. That is the space where I like to hunt in the alleyway between value and growth, where stocks trade cheaply not because they are broken, but because no one is looking. For years, investors like Peter Lynch have pointed out that the price-to-earnings growth ratio, or PEG, is a useful way to find companies that are growing fast but are still cheap relative to that growth.

But as with any valuation metric, the PEG ratio alone is not enough. Cheap stocks are often cheap for good reasons.

To separate the real deals from the potential disasters, I have found that combining the PEG ratio with fundamental quality measures improves the odds dramatically.

 Two of my favorite tools for doing this are the Piotroski F-score and the Altman Z-score. Each one tells you something different about the company, and each one adds a critical filter to avoid value traps. Used properly, each can help investors build a portfolio of undervalued growth stocks with a margin of safety.

Let us walk through each strategy.

Strategy 1: PEG + Piotroski F-Score
The Piotroski F-score is a nine-point checklist designed to measure the strength of a company’s financial position, profitability, and operational efficiency. It looks at things like return on assets, changes in leverage, current ratio, margins, and whether the company is issuing new shares. A score of 8 or 9 means the company is fundamentally very sound. A score of 2 or below suggests red flags.

When you screen for companies with a low PEG ratio typically below 1 you are already targeting companies that are cheap relative to their earnings growth. But growth alone is not enough. A company growing earnings at 20 percent a year with poor margins, heavy debt, or aggressive accounting may not be able to sustain that growth. That is where the F-score comes in. By requiring a Piotroski F-score of 7 or higher, you add a layer of quality and discipline to the growth valuation thesis.

Back tests have shown that this combination PEG under 1 and F-score above 6 tends to outperform both the market and either strategy on its own, particularly in the small and mid-cap segments. That is where analysts are scarce, price discovery is inefficient, and financial statement quality matters most.

Strategy 2: PEG + Altman Z-Score
The Altman Z-score was originally developed to predict bankruptcy risk. It is a composite of five balance sheet and income statement ratios, including working capital, retained earnings, EBIT, market value of equity to total liabilities, and revenue to total assets.

A score above 3 suggests a low risk of financial distress. A score below 1.8 suggests real danger.

This score adds another kind of safety filter to a PEG screen. A company may be cheap relative to growth, but if it is teetering on the edge of insolvency, then that cheapness may be warranted.

Combining a low PEG ratio with an Altman Z-score above 3 is a way to isolate stocks that are not only growing and undervalued but also financially strong and unlikely to implode due to leverage or poor liquidity.

This strategy may be particularly useful in economically uncertain or rising rate environments, when balance sheet quality becomes a key differentiator. During the past two decades, portfolios built using the PEG plus Z-score screen have shown better downside protection and lower volatility than those using PEG alone.

Two Lenses, Same Goal
Both approaches PEG plus F-score and PEG plus Z-score are aimed at finding the same thing: mispriced growth stocks that also pass a quality test. The F-score is more focused on operational and profitability trends. The Z-score is more about solvency and capital structure. Depending on the investor’s preference, either one can be the better lens. The F-score strategy may find more turnaround candidates. The Z-score strategy may lean toward steadier compounders with fortress balance sheets.

In practice, I like to run both screens and then do the deep dive from there. The overlap list stocks that score well on PEG, F-score, and Z-score is where the most interesting names usually show up. Those are the stocks I am willing to buy with both hands if I can get them cheap enough. They are growing, they are solid, and they are off the radar. That is my sweet spot.

The PEG ratio by itself can find you fast-growing stocks. But paired with quality filters like the F-score or Z-score, it becomes a powerful tool to build a high-conviction portfolio of undervalued growth names. In a market increasingly dominated by narrative and noise, that kind of quiet, quality growth is where the real money is made.

Star Group, L.P. SGU
Here is an excellent under-the-radar company that has a low PEG ratio and a high F-score:

Star Group, L.P. is an energy distribution and home services company focused primarily on heating oil and propane, with a strong footprint in the Northeast and Mid-Atlantic regions. The business generates reliable, if seasonal, cash flows supported by a sticky customer base and long-term trends in residential heating demand. While not a high-growth name, SGU has proven to be a stable income generator, with consistent dividend payments and a conservative balance sheet. Recent acquisitions in HVAC services and geographic expansion have modestly improved the company’s growth profile while also insulating it from volatility in fuel pricing. The company’s valuation remains reasonable, trading at a discount to peers on an EV/EBITDA basis, especially when adjusted for its relatively low leverage and strong free cash flow conversion.

For yield-focused or value-oriented investors, SGU presents a compelling case. The current distribution yield is approximately 6 percent and appears sustainable given the company’s historical payout discipline and ample liquidity. Management continues to prioritize steady returns over aggressive expansion, and with the volatility in energy markets subsiding, the company should benefit from more predictable margins in fiscal 2025. While SGU lacks the growth of larger utilities or infrastructure names, its combination of stability, yield, and cautious capital allocation makes it a solid addition to an income portfolio, especially in uncertain macro environments.

Progyny Inc. PGNY
Here is a company helping solve a niche medical need that is growing rapidly, trades for a low PEG ratio, and has a bulletproof Z-score:

Progyny is a leading provider of fertility and family-building benefits for large employers, offering a tech-enabled platform that combines benefit design, concierge care, and a curated provider network. The company serves over 400 employers, including many Fortune 500 firms, and has built a defensible niche by offering outcomes-based fertility solutions that reduce costs while improving patient satisfaction. In its most recent quarter, Progyny reported double-digit revenue and earnings growth, driven by strong utilization and continued client expansion. The company is also beginning to scale newer offerings such as menopause and men’s health benefits, which provide additional long-term growth levers and help deepen relationships with existing clients. Despite trading at a premium to traditional healthcare services firms on a price-to-earnings basis, Progyny’s strong revenue visibility, high gross margins, and consistent EBITDA performance make it a compelling option for growth-focused investors. Recent concerns around client concentration particularly the loss of a large tech client in 2024 have weighed on the stock, but the company has shown it can offset churn with new customer wins. With a strong balance sheet, no debt, and continued investment in platform capabilities, Progyny is well-positioned to benefit from long-term demographic and societal trends driving demand for fertility and family benefits. For investors looking for a profitable, differentiated healthcare growth story, PGNY remains an attractive candidate.