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 International Business Machines Corporation (IBM Quick QuoteIBM - 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, International Business Machines has a trailing twelve months PE ratio of 12.55, 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 20.27. While International Business Machines’ current PE level puts it above its midpoint of 11.29 over the past five years, the current level stands below the highs for the stock. This suggests that it could be a good time to enter into the stock.



Further, the stock’s PE also compares favorably with the Zacks classified Computer & Technology sector’s trailing twelve months PE ratio, which stands at 21.81. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
 


We should also point out that International Business Machines’ forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.

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, International Business Machines has a P/S ratio of about 2.03, which is lower than the S&P 500 average that comes in at 3.08 right now. This makes the stock undervalued from the P/S aspect too.



Broad Value Outlook

In aggregate, International Business Machines 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 International Business Machines a solid choice for value investors.

What About the Stock Overall?

Though International Business Machines 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 ‘A’. This gives IBM a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)

Notably, the company’s recent earnings estimates have been somewhat encouraging. The current quarter and full year estimates have seen one and two upward revisions, respectively in the last sixty days, compared to no downward revisions.

However, this has had a negligible impact on the consensus estimate, as the current quarter consensus estimate remained unchanged in the past two months, while the full year estimate climbed 0.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Given these mixed factors, the stock has just a Zacks Rank #3 (Hold), which makes us expect in-line performance from the company in the near term. Nonetheless, the slightly bullish sentiment should work in the company’s favor, in the long-run.

Bottom Line

All said, we believe International Business Machines is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 21% out of over 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.

Though the Zacks classified Computers – Integrated Systems industry has underperformed the broader market in the last two years, the industry has been gathering momentum since the beginning of 2016, hinting at revival prospects. In fact, in the last one year, the Zacks classified Computers – Integrated Systems industry has outperformed the broader market, which is clearly reflected in the chart below:



So, value investors might want to wait for the broader industry factors and analyst sentiment to gather some more momentum, but once that happens, this stock could be a compelling pick.

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