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Is CDW Corporation a Great Stock for Value Investors?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put CDW Corporation (CDW - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, CDW Corporation has a trailing twelve months PE ratio of 16.94. This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.84. If we focus on the stock’s long-term PE trend, the current level puts CDW Corporation’s current PE ratio above its midpoint of 15.08 over the past three years.
However, the stock’s PE compares favorably with the Zacks classified Computer & Technology sector’s trailing twelve months PE ratio, which stands at 21.25. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that CDW Corporation has a forward PE of a little less – 16.43 – so it is fair to say that a slightly more value-oriented path may be ahead for CDW Corporation stock in the near term too. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, CDW Corporation has a P/S ratio of about 0.58. This is way lower than the S&P 500 average, which comes in at 2.84 right now, indicating significant room for an upside move.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, CDW Corporation’s P/CF ratio of 13.06 is considerably lower than the Zacks classified IT – Services industry average of 25.75, which indicates that the stock is significantly undervalued in this respect.
Broad Value Outlook
In aggregate, CDW Corporation currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes CDW Corporation a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for CDW Corporation is 2.05, a level that is marginally lower than the industry average of 2.06. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CDW is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CDW Corporation might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘C’. This gives AAPL a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen two estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen five upward and no downward revisions in the same time period.
This has had a mixed impact on the consensus estimate, as the current quarter consensus estimate has dropped by 1.3% in the past two months, while the full year estimate has risen by 1.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
CDW Corporation is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. Nonetheless, over the past two years, the IT – Services industry has clearly outperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Is CDW Corporation a Great Stock for Value Investors?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put CDW Corporation (CDW - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, CDW Corporation has a trailing twelve months PE ratio of 16.94. This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.84. If we focus on the stock’s long-term PE trend, the current level puts CDW Corporation’s current PE ratio above its midpoint of 15.08 over the past three years.
However, the stock’s PE compares favorably with the Zacks classified Computer & Technology sector’s trailing twelve months PE ratio, which stands at 21.25. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that CDW Corporation has a forward PE of a little less – 16.43 – so it is fair to say that a slightly more value-oriented path may be ahead for CDW Corporation stock in the near term too. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, CDW Corporation has a P/S ratio of about 0.58. This is way lower than the S&P 500 average, which comes in at 2.84 right now, indicating significant room for an upside move.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, CDW Corporation’s P/CF ratio of 13.06 is considerably lower than the Zacks classified IT – Services industry average of 25.75, which indicates that the stock is significantly undervalued in this respect.
Broad Value Outlook
In aggregate, CDW Corporation currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes CDW Corporation a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for CDW Corporation is 2.05, a level that is marginally lower than the industry average of 2.06. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CDW is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CDW Corporation might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘C’. This gives AAPL a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen two estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen five upward and no downward revisions in the same time period.
This has had a mixed impact on the consensus estimate, as the current quarter consensus estimate has dropped by 1.3% in the past two months, while the full year estimate has risen by 1.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
CDW CORP Price and Consensus
CDW CORP Price and Consensus | CDW CORP Quote
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
CDW Corporation is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. Nonetheless, over the past two years, the IT – Services industry has clearly outperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>