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Is East West Bancorp a Great Stock for Value Investors?
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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 East West Bancorp, Inc. (EWBC - 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, East West Bancorp has a trailing twelve months PE ratio of 17.63, 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 compares in at about 20.10. If we focus on the stock’s long-term PE trend, the current level puts East West Bancorp’s current PE ratio above its midpoint over the past five years, with the number having trended somewhat upwards over the past few months.
Furthermore, the stock’s PE also compares favorably with the Zacks classified Banks-West sub-industry’s trailing twelve months PE ratio, which stands at 20.55. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that East West Bancorp has a forward PE ratio (price relative to this year’s earnings) of just 16.21, which is little lower the current level. So we might say that forward earnings estimates are already incorporated in the company’s current share price.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, East West Bancorp’s P/CF ratio of 15.10 is lower than the Zacks classified Banks-West sub-industry’s average of 16.37, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, East West Bancorp 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 East West Bancorp a solid choice for value investors.
What About the Stock Overall?
Though East West Bancorp 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 ‘A’. This gives EWBC 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 recent earnings estimates have been bullish. Both the current quarter and current year have seen seven estimates go higher in the past sixty days compared to no movement in the opposite direction.
This has had a significant impact on the consensus estimate though as the current quarter consensus estimate has climbed 5.7% in the past two months, while the full year estimate has jumped 8.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
As a result of the favorable estimate revision trend, the stock has just a Zacks Rank #1 (Strong Buy) and why we are looking for a robust performance from the company in the near term.
Bottom Line
East West Bancorp 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 6%) and a solid Zacks Rank instill investor confidence. Moreover, over the past two years, the Zacks Banks-West sub-industry has outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Is East West Bancorp 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 East West Bancorp, Inc. (EWBC - 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, East West Bancorp has a trailing twelve months PE ratio of 17.63, 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 compares in at about 20.10. If we focus on the stock’s long-term PE trend, the current level puts East West Bancorp’s current PE ratio above its midpoint over the past five years, with the number having trended somewhat upwards over the past few months.
Furthermore, the stock’s PE also compares favorably with the Zacks classified Banks-West sub-industry’s trailing twelve months PE ratio, which stands at 20.55. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that East West Bancorp has a forward PE ratio (price relative to this year’s earnings) of just 16.21, which is little lower the current level. So we might say that forward earnings estimates are already incorporated in the company’s current share price.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, East West Bancorp’s P/CF ratio of 15.10 is lower than the Zacks classified Banks-West sub-industry’s average of 16.37, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, East West Bancorp 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 East West Bancorp a solid choice for value investors.
What About the Stock Overall?
Though East West Bancorp 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 ‘A’. This gives EWBC 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 recent earnings estimates have been bullish. Both the current quarter and current year have seen seven estimates go higher in the past sixty days compared to no movement in the opposite direction.
This has had a significant impact on the consensus estimate though as the current quarter consensus estimate has climbed 5.7% in the past two months, while the full year estimate has jumped 8.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
East West Bancorp, Inc. Price and Consensus
East West Bancorp, Inc. Price and Consensus | East West Bancorp, Inc. Quote
As a result of the favorable estimate revision trend, the stock has just a Zacks Rank #1 (Strong Buy) and why we are looking for a robust performance from the company in the near term.
Bottom Line
East West Bancorp 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 6%) and a solid Zacks Rank instill investor confidence. Moreover, over the past two years, the Zacks Banks-West sub-industry has outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>