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 Compagnie Generale des Etablissements Michelin (MGDDY Quick QuoteMGDDY - 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, Michelin has a trailing twelve months PE ratio of 11.92, 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 20.18. While Michelin’s current PE level puts it slightly above its midpoint of 11.56 over the past five years, it stands below the highs for the stock, thereby leaving scope for entry still.



However, the stock’s PE stands a bit above the Zacks classified Auto – Tires - Trucks sector’s trailing twelve months PE ratio, which stands at 11.09. This indicates that the stock is slightly overvalued right now, compared to its peers.



We should also point out that Michelin has a forward PE ratio (price relative to this year’s earnings) of 12.80, so it is fair to expect an increase in the company’s share price in the near future.

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, Michelin has a P/S ratio of about 0.94, which is considerably lower than the S&P 500 average that comes in at 3.06 right now. So, the stock is undervalued from the P/S aspect too, as reflected in the chart below.



Broad Value Outlook

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

What About the Stock Overall?

Though Michelin 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 ‘D’. This gives MGDDY a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Notably, the company’s recent earnings estimates have been quite encouraging, as the full year estimates have witnessed one upward revision in the past sixty days compared to no downward revisions. This has had a meaningful impact on the consensus estimate, as the full year estimate has increased 8% in the last two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

This bullish trend is why the stock boasts a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.

Bottom Line

Michelin is an inspired choice for value investors, given its good lineup of statistics on this front. Apart from a solid Zacks Rank, the company boasts a strong industry rank (Top 15% out of over 250 industries) as well. In fact, over the past two years, the Zacks classified Rubber – Tires industry has clearly 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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