We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
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 Ciena Corporation (CIEN - 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, Ciena has a trailing twelve months PE ratio of 19.1, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 20.3. If we focus on the long-term PE trend, Ciena’s current PE level puts it below its midpoint over the past three years, with the number somewhat being in line over the past few months.
However, the stock’s PE does not compare favorably with the Zacks classified Fiber Optics industry’s trailing twelve months PE ratio, which stands at 18.4. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Ciena has a forward PE ratio (price relative to this year’s earnings) of just 16.2, so it is fair to say that a slightly more value-oriented path may be ahead for Ciena stock in the near term.
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, Ciena’s P/CF ratio of 13.5 is lower than the Zacks classified Fiber Optics industry average of 14.6, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Ciena 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 Ciena a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/S ratio (another great indicator of value) comes in at 1.11, which is far better than the industry average of 1.89. Clearly, CIEN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Ciena 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 CIEN 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 not been encouraging. The current quarter has seen no estimates going higher in the past sixty days compared to three lower, while the full year estimate has seen one up and one down in the same time period.
As a result, the current quarter consensus estimate has fallen by 12.1% in the past two months, while the full year estimate has declined by 2.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Notably, the stock has a long term expected earnings growth of 15.3% and sports a Zacks Rank #3 (Hold). These mixed expectations indicate that while the stock’s growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.
Bottom Line
Ciena is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a top industry rank (top 46% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Fiber Optics industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Is Ciena a Suitable 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 Ciena Corporation (CIEN - 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, Ciena has a trailing twelve months PE ratio of 19.1, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 20.3. If we focus on the long-term PE trend, Ciena’s current PE level puts it below its midpoint over the past three years, with the number somewhat being in line over the past few months.
However, the stock’s PE does not compare favorably with the Zacks classified Fiber Optics industry’s trailing twelve months PE ratio, which stands at 18.4. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Ciena has a forward PE ratio (price relative to this year’s earnings) of just 16.2, so it is fair to say that a slightly more value-oriented path may be ahead for Ciena stock in the near term.
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, Ciena’s P/CF ratio of 13.5 is lower than the Zacks classified Fiber Optics industry average of 14.6, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Ciena 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 Ciena a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/S ratio (another great indicator of value) comes in at 1.11, which is far better than the industry average of 1.89. Clearly, CIEN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Ciena 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 CIEN 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 not been encouraging. The current quarter has seen no estimates going higher in the past sixty days compared to three lower, while the full year estimate has seen one up and one down in the same time period.
As a result, the current quarter consensus estimate has fallen by 12.1% in the past two months, while the full year estimate has declined by 2.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Ciena Corporation Price and Consensus
Ciena Corporation Price and Consensus | Ciena Corporation Quote
Notably, the stock has a long term expected earnings growth of 15.3% and sports a Zacks Rank #3 (Hold). These mixed expectations indicate that while the stock’s growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.
Bottom Line
Ciena is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a top industry rank (top 46% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks Fiber Optics industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>