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Does Lowe's (LOW) Make for a Suitable Value Investment?
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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 Lowe’s Companies, Inc. (LOW - 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, Lowe’s has a trailing twelve months PE ratio of 19.09. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.29.
If we focus on the long-term trend of the stock, the current level puts Lowe’s current PE among its lows over the past five years. This suggests that the stock is undervalued compared to its own historical levels and thus it could prove to be a suitable entry point from a PE perspective.
Further, the stock’s PE also compares favorably with the Zacks classified Building Products – Retail industry’s trailing twelve months PE ratio, which stands at 22.48. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Lowe’s has a forward PE ratio (price relative to this year’s earnings) of just 17.09, so it is fair to say that a slightly more value-oriented path may be ahead for Lowe’s stock in the near term too.
PS 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, Lowe’s has a P/S ratio of about 1.02. This is lower than the Zacks categorized Building Products – Retail industry average, which comes in at 1.31 right now.
LOW is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Lowe’s 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 Lowe’s a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Lowe’s is just 1.16, a level that is lower than the industry average of 1.46. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 8.98, which is far better than the industry average of 16.38. Clearly, LOW is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Lowe’s 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 ‘A’ and a Momentum score of ‘B’. This gives LOW a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Lowe’s seems to have pretty striking prospects.
However, the company’s recent earnings estimates have been mixed at best. The current quarter has seen four estimates go higher in the past thirty days compared to three lower, while the full year estimate has seen one upward revision and eight downward revisions in the same time period.
This has had a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant, while the full year estimate has inched slightly lower. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Lowe’s is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.
Also, notably, the Building Products – Retail industry has clearly outperformed the broader market over the last two yeas, as you can see below:
Nevertheless, although boasting of a strong industry rank (Top 38% out of more than 250 industries), the company’s Zacks Rank #3 somewhat dims the sparkle. So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
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Does Lowe's (LOW) Make for a Suitable Value Investment?
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 Lowe’s Companies, Inc. (LOW - 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, Lowe’s has a trailing twelve months PE ratio of 19.09. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.29.
If we focus on the long-term trend of the stock, the current level puts Lowe’s current PE among its lows over the past five years. This suggests that the stock is undervalued compared to its own historical levels and thus it could prove to be a suitable entry point from a PE perspective.
Further, the stock’s PE also compares favorably with the Zacks classified Building Products – Retail industry’s trailing twelve months PE ratio, which stands at 22.48. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Lowe’s has a forward PE ratio (price relative to this year’s earnings) of just 17.09, so it is fair to say that a slightly more value-oriented path may be ahead for Lowe’s stock in the near term too.
PS 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, Lowe’s has a P/S ratio of about 1.02. This is lower than the Zacks categorized Building Products – Retail industry average, which comes in at 1.31 right now.
LOW is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Lowe’s 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 Lowe’s a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Lowe’s is just 1.16, a level that is lower than the industry average of 1.46. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 8.98, which is far better than the industry average of 16.38. Clearly, LOW is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Lowe’s 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 ‘A’ and a Momentum score of ‘B’. This gives LOW a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Lowe’s seems to have pretty striking prospects.
However, the company’s recent earnings estimates have been mixed at best. The current quarter has seen four estimates go higher in the past thirty days compared to three lower, while the full year estimate has seen one upward revision and eight downward revisions in the same time period.
This has had a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant, while the full year estimate has inched slightly lower. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Lowe's Companies, Inc. Price and Consensus
Lowe's Companies, Inc. Price and Consensus | Lowe's Companies, Inc. Quote
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Lowe’s is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front.
Also, notably, the Building Products – Retail industry has clearly outperformed the broader market over the last two yeas, as you can see below:
Nevertheless, although boasting of a strong industry rank (Top 38% out of more than 250 industries), the company’s Zacks Rank #3 somewhat dims the sparkle. So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>