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Should Value Investors Pick Michelin (MGDDY) Stock Now?

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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 Compagnie Générale des Etablissements Michelin (MGDDY - 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, Michelin has a trailing twelve months PE ratio of 13.23, 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 20.34. If we focus on the long-term PE trend, Michelin’s current PE level puts it above its midpoint over the past five years.



However, the stock’s PE also compares unfavorably with the Zacks classified Rubber-Tires industry’s trailing twelve months PE ratio, which stands at 8.36. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.



We should point out that Michelin has a forward PE ratio (price relative to this year’s earnings) of 13.35, so it is fair to expect an increase in the company’s share price in the near future.

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, Michelin has a P/S ratio of 1.04. This is lower than the S&P 500 average, which comes in at 3.15 right now.



If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

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

For example, the P/CF ratio (another great indicator of value) comes in at 7.05, which is better than the industry average of 8.56. Clearly, MGDDY is a good choice on the value front from multiple angles.

What About the Stock Overall?

Though Michelin 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 Michelin 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 encouraging. The current year and next has seen one upward estimate revision in the past sixty days compared to none downward.

As a result, the current year consensus estimate has moved up by 10.5% in the past two months, while the next year estimate has inched higher by 10.5%.

This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.

Bottom Line

Michelin is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (top 17%) and Zacks Rank #2, the company deserves attention right now. In fact, over the past two years, the Zacks Auto Rubber-Tires industry has clearly outperformed the broader market, as you can see below:



So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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