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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 Stantec Inc. (STN - 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, Stantec has a trailing twelve months PE ratio of 21.6, as you can see in the chart below:
This level compares unfavorably with the market at large, as the PE for the S&P 500 stands at about 19.86. If we focus on the long-term PE trend, Stantec’s current PE level puts it above its midpoint, with the number having risen rapidly over the past few months.
However, the stock’s PE compares favorably with the Zacks classified Consulting industry’s trailing twelve months PE ratio, which stands at 22.43. At the very least, this indicates that the stock is somewhat undervalued right now, compared to its peers.
We should also point out that Stantec has a forward PE ratio (price relative to this year’s earnings) of 16.29, so it is fair to say that a slightly more value-oriented path may be ahead for Stantec stock in the near term.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Stantec’s PEG ratio stands at just 0.91, compared with the Zacks Consulting industry average of 1.55. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Stantec currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Stantec a good choice for value investors, and some of its other key metrics make this pretty clear too.
For example, Stantec has a P/S ratio of about 1.07. This is a bit lower than the industry’s average, which comes in at 1.17 right now. P/S ratio compares a given stock’s price to its total sales, where a lower reading is generally considered better. Clearly, STN is a good choice on the value front from multiple angles.
What About the Stock Overall?
Though Stantec 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 ‘D’ and a Momentum score of ‘F’. This gives STN a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (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 one estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen one upward revision and three downward revisions in the same time period.
This has had a positive impact on the consensus estimate as the current quarter consensus estimate has risen by 3% in the past two months, while the full year estimate has inched higher by 0.8%. Though the stock has a Zacks Rank #4 (Sell), a favorable consensus estimate trend reinstates some hope in the stock.
Bottom Line
Stantec is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 22%) and a Zacks Rank #4, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks Consulting industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks' Top 10 Stocks for 2017
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Can Stantec Be a Top Choice 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?
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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 Stantec Inc. (STN - 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, Stantec has a trailing twelve months PE ratio of 21.6, as you can see in the chart below:
This level compares unfavorably with the market at large, as the PE for the S&P 500 stands at about 19.86. If we focus on the long-term PE trend, Stantec’s current PE level puts it above its midpoint, with the number having risen rapidly over the past few months.
However, the stock’s PE compares favorably with the Zacks classified Consulting industry’s trailing twelve months PE ratio, which stands at 22.43. At the very least, this indicates that the stock is somewhat undervalued right now, compared to its peers.
We should also point out that Stantec has a forward PE ratio (price relative to this year’s earnings) of 16.29, so it is fair to say that a slightly more value-oriented path may be ahead for Stantec stock in the near term.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Stantec’s PEG ratio stands at just 0.91, compared with the Zacks Consulting industry average of 1.55. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Stantec currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Stantec a good choice for value investors, and some of its other key metrics make this pretty clear too.
For example, Stantec has a P/S ratio of about 1.07. This is a bit lower than the industry’s average, which comes in at 1.17 right now. P/S ratio compares a given stock’s price to its total sales, where a lower reading is generally considered better. Clearly, STN is a good choice on the value front from multiple angles.
What About the Stock Overall?
Though Stantec 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 ‘D’ and a Momentum score of ‘F’. This gives STN a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (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 one estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen one upward revision and three downward revisions in the same time period.
This has had a positive impact on the consensus estimate as the current quarter consensus estimate has risen by 3% in the past two months, while the full year estimate has inched higher by 0.8%. Though the stock has a Zacks Rank #4 (Sell), a favorable consensus estimate trend reinstates some hope in the stock.
Bottom Line
Stantec is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (bottom 22%) and a Zacks Rank #4, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks Consulting industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors 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 buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>