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Should Value Investors Consider HCA Holdings Stock?
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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 HCA Holdings, Inc. (HCA - 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, HCA Holdings has a trailing twelve months PE ratio of 11.49, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.93. If we focus on the long-term PE trend, HCA Holdings’ current PE level puts it below its midpoint over the past five years, with the number having falling rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Medical-Hospitals industry’s trailing twelve months PE ratio, which stands at 13.72. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that HCA Holdings has a forward PE ratio (price relative to this year’s earnings) of just 10.71, so it is fair to say that a slightly more value-oriented path may be ahead for HCA Holdings stock in the near term too.
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, HCA Holdings has a P/S ratio of about 0.73. This is much lower than the S&P 500 average, which comes in at 2.98 right now. Also, as we can see in the chart below, this is below the highs and somewhere near the median zone for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, HCA Holdings 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 HCA Holdings a solid choice for value investors.
What About the Stock Overall?
Though HCA Holdings 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 ‘B’. This gives HCA 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 trending higher. The current quarter has seen one estimate go higher in the past sixty days compared to none lower, and the full year estimate has seen two upward revisions and no downward revision in the same time period.
This has also had an impact on the consensus estimate as the current quarter consensus estimate has risen by nearly 0.6% in the past two months, while the full year estimate has also been marginally revised higher. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite having a bullish trend, HCA sports a Zacks Rank #3 (Hold). This indicates that analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.
Bottom Line
HCA is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, the stock belongs to an industry which is ranked among the Top 33%, which indicates that broader factors are favorable for the company.
However, because it carries a Zacks Rank #3 it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Medical-Hospitals industry has underperformed 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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Should Value Investors Consider HCA Holdings Stock?
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 HCA Holdings, Inc. (HCA - 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, HCA Holdings has a trailing twelve months PE ratio of 11.49, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.93. If we focus on the long-term PE trend, HCA Holdings’ current PE level puts it below its midpoint over the past five years, with the number having falling rapidly over the past few months.
Further, the stock’s PE also compares favorably with the Zacks classified Medical-Hospitals industry’s trailing twelve months PE ratio, which stands at 13.72. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that HCA Holdings has a forward PE ratio (price relative to this year’s earnings) of just 10.71, so it is fair to say that a slightly more value-oriented path may be ahead for HCA Holdings stock in the near term too.
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, HCA Holdings has a P/S ratio of about 0.73. This is much lower than the S&P 500 average, which comes in at 2.98 right now. Also, as we can see in the chart below, this is below the highs and somewhere near the median zone for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, HCA Holdings 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 HCA Holdings a solid choice for value investors.
What About the Stock Overall?
Though HCA Holdings 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 ‘B’. This gives HCA 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 trending higher. The current quarter has seen one estimate go higher in the past sixty days compared to none lower, and the full year estimate has seen two upward revisions and no downward revision in the same time period.
This has also had an impact on the consensus estimate as the current quarter consensus estimate has risen by nearly 0.6% in the past two months, while the full year estimate has also been marginally revised higher. You can see the consensus estimate trend and recent price action for the stock in the chart below:
HCA Holdings, Inc. Price and Consensus
HCA Holdings, Inc. Price and Consensus | HCA Holdings, Inc. Quote
Despite having a bullish trend, HCA sports a Zacks Rank #3 (Hold). This indicates that analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.
Bottom Line
HCA is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, the stock belongs to an industry which is ranked among the Top 33%, which indicates that broader factors are favorable for the company.
However, because it carries a Zacks Rank #3 it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Medical-Hospitals industry has underperformed 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 Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>.