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Is Rio Tinto (RIO) 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 Rio Tinto Plc (RIO - 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, Rio Tinto has a trailing twelve months PE ratio of 14.50, 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 20.31. If we focus on the stock’s long-term PE trend, the current level puts Rio Tinto’s current PE ratio above its midpoint over the past five years, with the number having trended roughly upwards since 2016.
Further, the stock’s PE also compares favorably with the Zacks classified Mining-Miscellaneous sector’s trailing twelve months PE ratio, which stands at 55.40. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.
We should also point out that Rio Tinto has a forward PE ratio (price relative to this year’s earnings) of just 8.16, so it is fair to say that a slightly more value-oriented path may be ahead for Rio Tinto stock in the near term too.
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, Rio Tinto has a P/S ratio of about 1.66. This is much lower than the S&P 500 average, which comes in at 3.08 right now. Also, as we can see in the chart below, this is tad below the highs for this stock in particular over the past few years, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Rio Tinto 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 Rio Tinto a solid choice for value investors.
What About the Stock Overall?
Though Rio Tinto 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 ‘A’. This gives RIO 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 quite encouraging. The full year has witnessed two estimates moving north compared to one revision in the opposite direction, over the past two months.
This has had a substantial impact on the consensus estimate, as it jumped 33.6% over the same time period. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite this strong bullish analyst sentiment, we have a Zacks Rank #3 (Hold) on the stock, which indicates expectations of in-line performance from the company in the near term.
Bottom Line
Rio Tinto is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a strong good industry rank (among Top 22% of more than 250 industries) increases our confidence on the stock.
A good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in Rio Tinto.
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Is Rio Tinto (RIO) 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 Rio Tinto Plc (RIO - 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, Rio Tinto has a trailing twelve months PE ratio of 14.50, 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 20.31. If we focus on the stock’s long-term PE trend, the current level puts Rio Tinto’s current PE ratio above its midpoint over the past five years, with the number having trended roughly upwards since 2016.
Further, the stock’s PE also compares favorably with the Zacks classified Mining-Miscellaneous sector’s trailing twelve months PE ratio, which stands at 55.40. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.
We should also point out that Rio Tinto has a forward PE ratio (price relative to this year’s earnings) of just 8.16, so it is fair to say that a slightly more value-oriented path may be ahead for Rio Tinto stock in the near term too.
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, Rio Tinto has a P/S ratio of about 1.66. This is much lower than the S&P 500 average, which comes in at 3.08 right now. Also, as we can see in the chart below, this is tad below the highs for this stock in particular over the past few years, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Rio Tinto 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 Rio Tinto a solid choice for value investors.
What About the Stock Overall?
Though Rio Tinto 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 ‘A’. This gives RIO 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 quite encouraging. The full year has witnessed two estimates moving north compared to one revision in the opposite direction, over the past two months.
This has had a substantial impact on the consensus estimate, as it jumped 33.6% over the same time period. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Rio Tinto PLC Price and Consensus
Rio Tinto PLC Price and Consensus | Rio Tinto PLC Quote
Despite this strong bullish analyst sentiment, we have a Zacks Rank #3 (Hold) on the stock, which indicates expectations of in-line performance from the company in the near term.
Bottom Line
Rio Tinto is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a strong good industry rank (among Top 22% of more than 250 industries) increases our confidence on the stock.
A good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in Rio Tinto.
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 >>