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 Amgen Inc. (AMGN Quick QuoteAMGN - 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, Amgen has a trailing twelve months PE ratio of 13.70, 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, Amgen’s current PE is little below its mid point level. 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-Biomed and Genetics industry’s trailing twelve months PE ratio, which stands at 26.04. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.

In fact, if we look at the following chart, we can see that the stock’s price has not increased meaningfully in 2016, despite strong earnings expansion. This indicates that the price has not yet appreciated enough to reflect the growth in earnings, and thus, this could indicate that the company is a strong value proposition.

However, we should also point out that Amgen has a forward PE ratio (price relative to this year’s earnings) of 12.65, which is a little below the current level. Hence, it is fair to say that a slightly more value-oriented path may be ahead for Amgen 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.

Amgen’s PEG ratio stands at just 1.83, compared with the Zacks Medical-Biomed and Genetics industry average of 2.24. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Broad Value Outlook

In aggregate, Amgen 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 Amgen a solid choice for value investors.

What About the Stock Overall?

Though Amgen 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 ‘C’ and a Momentum score of ‘F’. As a result, Amgen has a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s estimate revision trend has been positive. The current quarter has seen two estimates go higher in the past sixty days compared to no movement in the opposite direction, while the full year estimate has also seen two estimates going up with no downward movement over the same time frame.

This has had a modest impact on the consensus estimate, as the current quarter estimate has gone up 0.4% over the past two months, while the full year estimate has inched up 0.08%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Amgen Inc. Price and Consensus

 

Amgen Inc. Price and Consensus | Amgen Inc. Quote

This slightly bullish trend indicates that analysts feel good about this company right now, despite the fact that the stock has just a Zacks Rank #3 (Hold), which signals expectations of in-line performance from the company in the near term.

Bottom Line

Amgen 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 Medical-Biomed and Genetics 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. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in Amgen.

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