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 East West Bancorp, Inc. (EWBC Quick QuoteEWBC - 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, East West Bancorp has a trailing twelve months PE ratio of 16.88, 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 20.24. If we focus on the long-term PE trend, East West Bancorp’s current PE level puts it above its midpoint over the past five years.

Further, the stock’s PE also compares favorably with the Zacks classified Banks-West industry’s trailing twelve months PE ratio, which stands at 19.22. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that East West Bancorp has a forward PE ratio (price relative to this year’s earnings) of just 15.49, so it is fair to say that a slightly more value-oriented path may be ahead for East West Bancorp stock in the near term too.

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, East West Bancorp’s P/CF ratio of 13.42 is lower than the Zacks classified Banks-West industry average of 15.45, which indicates that the stock is undervalued in this respect as well.

Broad Value Outlook

In aggregate, East West Bancorp 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 East West Bancorp a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for East West Bancorp is just 1.48, a level that is a bit lower than the industry average of 1.82. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, EWBC is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though East West Bancorp  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 ‘F’ and a Momentum score of ‘A’. This gives EWBC a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been pretty encouraging. The current year has seen three estimates going higher in the past sixty days compared to one lower, while the next year estimate has also seen three upward and one downward movement in the same time period.

This has had a significant impact on the consensus estimate though as the current year consensus estimate has inched up by 0.6% in the past two months and the next year estimate has gone up by 0.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term

Bottom Line

East West Bancorp is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. A strong industry rank (Top 11% out of more than 250 industries) further increases its future growth potential. In fact, over the past two years, the Zacks Banks- West industry has clearly outperformed the broader market, as you can see below:

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.

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