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 Cooper Tire & Rubber Company 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, Cooper Tire has a trailing twelve months PE ratio of 9.19. This level compares considerably favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.18.
If we focus on the long-term trend of the stock the current level puts Cooper Tire’s current PE below its median (which stands at 10.08), suggesting that the stock is undervalued compared to its historical levels.
Further, the stock’s PE also compares favorably with the Zacks classified Auto, Tires and Trucks sector’s trailing twelve months PE ratio, which stands at 11.04. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
PS 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, Cooper Tire has a P/S ratio of about 0.79. This is slightly higher than the Zacks categorized Building & Auto, Tires and Trucks sector’s average, which comes in at 0.65 right now. Nevertheless, a P/S ratio of less than 1 is generally a good signal.
Notably, CTB is actually towards the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
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, Cooper Tire’s P/CF ratio of 5.46 is lower than the Zacks classified Building & Auto, Tires and Trucks sector average of 6.71, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Cooper Tire 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 Cooper Tire a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its EV/EBITDA for Continental is just 3.72, a level that is significantly lower than the industry average of 8.30. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity. Since the Building & Auto, Tires and Trucks sector is highly capital-intensive, it makes sense to compare based on this ratio too.
Clearly, CTB is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cooper Tire 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 ‘A’ and a Momentum score of ‘D’. This gives CTB a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Cooper Tire seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending down lately. The current quarter has seen four estimates go lower in the past thirty days compared to none higher, while the full year estimate has seen four downward revisions and one upward revision in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has moved south by 18% in the past month, while the full year estimate has inched lower by 2.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Cooper Tire & Rubber Company Price and Consensus
This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Cooper Tire is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.
The company forms a part of the Zacks classified Rubber – Tires industry which has a formidable industry rank (among the Top 6% out of more than 250 industries). Moreover, Cooper Tire’s focus on developing new product as well as its capital allocation plans to enhance shareholder value, are added positives for the company.
Notably, over the past two years, the Zacks categorized Rubber – Tires industry has clearly outperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn bullish in this name first, but once that happens, this stock could be a compelling pick.
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Image: Bigstock
Will Cooper Tire (CTB) Be a Suitable Pick 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 Cooper Tire & Rubber Company 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, Cooper Tire has a trailing twelve months PE ratio of 9.19. This level compares considerably favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.18.
If we focus on the long-term trend of the stock the current level puts Cooper Tire’s current PE below its median (which stands at 10.08), suggesting that the stock is undervalued compared to its historical levels.
Further, the stock’s PE also compares favorably with the Zacks classified Auto, Tires and Trucks sector’s trailing twelve months PE ratio, which stands at 11.04. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
PS 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, Cooper Tire has a P/S ratio of about 0.79. This is slightly higher than the Zacks categorized Building & Auto, Tires and Trucks sector’s average, which comes in at 0.65 right now. Nevertheless, a P/S ratio of less than 1 is generally a good signal.
Notably, CTB is actually towards the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
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, Cooper Tire’s P/CF ratio of 5.46 is lower than the Zacks classified Building & Auto, Tires and Trucks sector average of 6.71, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Cooper Tire 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 Cooper Tire a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its EV/EBITDA for Continental is just 3.72, a level that is significantly lower than the industry average of 8.30. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity. Since the Building & Auto, Tires and Trucks sector is highly capital-intensive, it makes sense to compare based on this ratio too.
Clearly, CTB is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cooper Tire 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 ‘A’ and a Momentum score of ‘D’. This gives CTB a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Cooper Tire seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been trending down lately. The current quarter has seen four estimates go lower in the past thirty days compared to none higher, while the full year estimate has seen four downward revisions and one upward revision in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has moved south by 18% in the past month, while the full year estimate has inched lower by 2.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Cooper Tire & Rubber Company Price and Consensus
Cooper Tire & Rubber Company Price and Consensus | Cooper Tire & Rubber Company Quote
This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Cooper Tire is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.
The company forms a part of the Zacks classified Rubber – Tires industry which has a formidable industry rank (among the Top 6% out of more than 250 industries). Moreover, Cooper Tire’s focus on developing new product as well as its capital allocation plans to enhance shareholder value, are added positives for the company.
Notably, over the past two years, the Zacks categorized Rubber – Tires industry has clearly outperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn bullish in this name first, but once that happens, this stock could be a compelling pick.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>