We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Is Gilead Sciences (GILD) a Great Stock for Value Investors?
Read MoreHide Full Article
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 Gilead Sciences Inc. (GILD - 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, Gilead Sciences has a trailing twelve months PE ratio of 6.02, as you can see in the chart below:
This level is significantly favorable with the market at large, as the PE for the S&P 500 compares in at about 19.89. If we focus on the stock’s long-term PE trend, the current level puts Gilead Sciences’ current PE ratio much below its midpoint (which is 14.98) over the past five years, with the number falling over the past few months. Moreover, the current level is below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.
Delving deeper into the PE's inputs, we observed that the company’s PE multiple has been rapidly falling since early 2014. This was driven by a sharp increase in earnings, without a corresponding increase in price as seen in the chart below. These trends indicate that the stock might be trading at a good entry point.
Further, the stock’s PE also compares favorably with the Zacks classified Medical sector’s trailing twelve months PE ratio, which stands at 18.04. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Gilead Sciences has a forward PE ratio (price relative to this year’s earnings) of 6.90, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.
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, Gilead Sciences has a P/S ratio of about 3.04. This is somewhat higher than the S&P 500 average, which comes in at 2.97 right now. However, as we can see in the chart below, this is much below the highs for this stock in particular over the past few years.
Meanwhile, if we focus on the stock’s long term trend, we see that the stock’s multiple has always traded higher than the overall market. In fact, the current level is actually equal to the historical lows for the company in the observed period. Hence, we might conclude that in light of past trends, the stock seems to be trading at a low valuation from a P/S perspective.
Broad Value Outlook
In aggregate, Gilead Sciences 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 Gilead Sciences a solid choice for value investors.
Gilead Sciences’ P/CF ratio (another great indicator of value) comes in at 5.50, while the industry’s average stands at a negative 3.86. Thus, while the industry is experiencing negative cash flows, Gilead Sciences’ financial health seems much better. Clearly, Gilead Sciences is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Gilead Sciences 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 ‘A’. This gives Gilead Sciences 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 disappointing. The current quarter has seen no estimate go higher in the past sixty days and two lower, while the full year estimate has seen no upward revision and two downward revisions in the same time period.
This has had a considerable impact on the consensus estimate, as the current quarter consensus estimate has fallen 8.7% in the past two months, while the full year estimate has declined 1.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bearish 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
Gilead Sciences is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, despite a decent industry rank (top 33% out of more than 250 industries), a Zacks Rank #3, makes it hard to get too excited about this company overall. In fact, over the past two years, the Zacks Medical-Biomedical/Genetics sector has clearly 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.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Is Gilead Sciences (GILD) 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 Gilead Sciences Inc. (GILD - 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, Gilead Sciences has a trailing twelve months PE ratio of 6.02, as you can see in the chart below:
This level is significantly favorable with the market at large, as the PE for the S&P 500 compares in at about 19.89. If we focus on the stock’s long-term PE trend, the current level puts Gilead Sciences’ current PE ratio much below its midpoint (which is 14.98) over the past five years, with the number falling over the past few months. Moreover, the current level is below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.
Delving deeper into the PE's inputs, we observed that the company’s PE multiple has been rapidly falling since early 2014. This was driven by a sharp increase in earnings, without a corresponding increase in price as seen in the chart below. These trends indicate that the stock might be trading at a good entry point.
Further, the stock’s PE also compares favorably with the Zacks classified Medical sector’s trailing twelve months PE ratio, which stands at 18.04. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Gilead Sciences has a forward PE ratio (price relative to this year’s earnings) of 6.90, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.
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, Gilead Sciences has a P/S ratio of about 3.04. This is somewhat higher than the S&P 500 average, which comes in at 2.97 right now. However, as we can see in the chart below, this is much below the highs for this stock in particular over the past few years.
Meanwhile, if we focus on the stock’s long term trend, we see that the stock’s multiple has always traded higher than the overall market. In fact, the current level is actually equal to the historical lows for the company in the observed period. Hence, we might conclude that in light of past trends, the stock seems to be trading at a low valuation from a P/S perspective.
Broad Value Outlook
In aggregate, Gilead Sciences 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 Gilead Sciences a solid choice for value investors.
Gilead Sciences’ P/CF ratio (another great indicator of value) comes in at 5.50, while the industry’s average stands at a negative 3.86. Thus, while the industry is experiencing negative cash flows, Gilead Sciences’ financial health seems much better. Clearly, Gilead Sciences is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Gilead Sciences 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 ‘A’. This gives Gilead Sciences 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 disappointing. The current quarter has seen no estimate go higher in the past sixty days and two lower, while the full year estimate has seen no upward revision and two downward revisions in the same time period.
This has had a considerable impact on the consensus estimate, as the current quarter consensus estimate has fallen 8.7% in the past two months, while the full year estimate has declined 1.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Gilead Sciences Inc. Price and Consensus
Gilead Sciences Inc. Price and Consensus | Gilead Sciences Inc. Quote
This bearish 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
Gilead Sciences is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, despite a decent industry rank (top 33% out of more than 250 industries), a Zacks Rank #3, makes it hard to get too excited about this company overall. In fact, over the past two years, the Zacks Medical-Biomedical/Genetics sector has clearly 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.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>