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 Jazz Pharmaceuticals Public Limited Company (JAZZ Quick QuoteJAZZ - 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, Jazz Pharmaceuticals has a trailing twelve months PE ratio of 15.88, 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 19.86. If we focus on the long-term PE trend, Jazz Pharmaceutical’s current PE is little below its mid point level, with the number having trended downward over the last few months. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.

Furthermore, the stock’s PE also compares favorably with the Zacks classified Medical-Drugs industry’s trailing twelve months PE ratio, which stands at 43.88. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.

However, we should also point out that Jazz Pharmaceuticals has a forward PE ratio (price relative to this year’s earnings) of 14.53, which is a tad below the current level. Hence, it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term too.

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.

Jazz Pharmaceutical’s PEG ratio stands at just 0.94, compared with the Zacks Medical-Drugs industry average of 2.59. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Broad Value Outlook

In aggregate, Jazz Pharmaceutical’s 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 Jazz Pharmaceuticals a solid choice for value investors, and some of its other key metrics make this pretty clear too.

What About the Stock Overall?

Though Jazz Pharmaceuticals 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 ‘B’ and a Momentum score of ‘A’. As a result, Jazz Pharmaceuticals has 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 the best. Notably, both the current quarter and the current year have witnessed one downward estimate revision, compared to no movement in the opposite direction over the last one month.

This has had a modest impact on the consensus estimate though as the current quarter consensus estimate has fallen by roughly 1.2% over the past month.

On the contrary, despite the downward revision, the full year estimate has inched up by 2%. 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

Jazz Pharmaceuticals is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the Top 34%) should boost investor confidence.

However, over the past two years, the Zacks categorized Medical-Drugs industry has underperformed the broader market, as you can see below:

Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. However, keeping in mind the mixed estimate revision activity and a Zacks Rank #3, we believe it would be prudent for value investors 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’ Best Private Investment Ideas

In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?

Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>