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Is Honda Motor (HMC) 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 Honda Motor Company, Ltd. (HMC - 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:
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, Honda Motor has a P/S ratio of about 0.44. This is significantly lower than the S&P 500 average, which comes in at 3.06 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, HMC is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
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, Honda Motor’s P/CF ratio of 5.50 is lower than the Zacks classified Auto-Tires-Truck sector’s average of 6.74, which indicates that the stock is undervalued in this respect as well.
Broad Value Outlook
In aggregate, Honda Motor 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 Honda Motor a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Honda Motor is 0.42, lower than the industry average of 0.63. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Honda Motor 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 ‘D’. This gives HMC a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen no estimate going higher in the past sixty days compared to one lower, while the full year estimate has seen two up and no downward movements in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has declined by 20% in the past two months, while the full year estimate has inched up by 6.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite this somewhat mixed trend, the stock has just a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term
Bottom Line
Honda Motor is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 10%) and strong Zacks Rank, Honda Motor looks like a strong value contender..
However, it is hard to get too excited about this company overall as over the past two years, the Zacks Auto-Tires-Truck sector industry has underperformed 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.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017? Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>
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Is Honda Motor (HMC) 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 Honda Motor Company, Ltd. (HMC - 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:
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, Honda Motor has a P/S ratio of about 0.44. This is significantly lower than the S&P 500 average, which comes in at 3.06 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, HMC is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
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, Honda Motor’s P/CF ratio of 5.50 is lower than the Zacks classified Auto-Tires-Truck sector’s average of 6.74, which indicates that the stock is undervalued in this respect as well.
Broad Value Outlook
In aggregate, Honda Motor 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 Honda Motor a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Honda Motor is 0.42, lower than the industry average of 0.63. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Honda Motor 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 ‘D’. This gives HMC a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen no estimate going higher in the past sixty days compared to one lower, while the full year estimate has seen two up and no downward movements in the same time period.
This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has declined by 20% in the past two months, while the full year estimate has inched up by 6.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Honda Motor Company, Ltd. Price and Consensus
Honda Motor Company, Ltd. Price and Consensus | Honda Motor Company, Ltd. Quote
Despite this somewhat mixed trend, the stock has just a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term
Bottom Line
Honda Motor is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 10%) and strong Zacks Rank, Honda Motor looks like a strong value contender..
However, it is hard to get too excited about this company overall as over the past two years, the Zacks Auto-Tires-Truck sector industry has underperformed 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.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017? Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>