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 CalAtlantic Group, Inc. 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, CalAtlantic has a trailing twelve months PE ratio of 9.36. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.35.
If we focus on the long-term trend of the stock the current level puts CalAtlantic’s current PE near its historical lows. The current PE is well below its median for the term (which stands at 16.29), and the number has been falling rapidly since the highs of 2012. Thus, the present level seems to be a suitable entry point for the stock in this respect.
Since a stock’s PE is based on only two inputs, we tried to figure out the reason behind the consistently falling PE metric. It could either be constantly bad price performance or a favorable earnings trend. We find that in the case of CalAtlantic, steady earnings growth has been the driving factor for the falling PE multiple, as can be figured out from the graph below:
Currently, the stock’s PE also compares favorably with the Zacks classified Building Products - Home Builders industry’s trailing twelve months PE ratio, which stands at 14.26. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
The above chart depicts the PE trend as compared with the industry (we have excluded the outliers experienced in 2012 to make the trend clearer). Thus, we can see that over the last 1.5 years, CalAtlantic has been trading consistently cheaper than its close peers.
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, CalAtlantic has a P/S ratio of about 0.70. This is lower than the Zacks categorized Building – Residential Commercial industry average, which comes in at 1.03 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
This clearly suggests some level of undervalued trading for CAA—at least compared to historical norms.
Broad Value Outlook
In aggregate, CalAtlantic 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 CalAtlantic a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 0.92, lower than the industry average of 1.28.
Furthermore, the EV/EBITDA for CalAtlantic is just 8.42, a level that is far lower than the industry average of 11.13. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity. Since the Building Products - Home Builders industry is highly capital-intensive, it makes sense to compare based on this ratio too.
Clearly, CAA is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CalAtlantic 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 ‘C’ and a Momentum score of ‘B’. This gives CAA 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, CalAtlantic seems to have pretty striking prospects.
However, the company’s recent earnings estimates have been mixed at best. The current quarter has seen three estimates go higher in the past thirty days compared to one lower, while the full year estimate has seen two upward revisions versus one downward 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 in the past month, while the full year estimate has declined 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
CalAtlantic Group, Inc. Price and Consensus
The combination of these somewhat mixed factors is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
CalAtlantic is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Although boasting of a formidable industry rank (Top 25% out of more than 250 industries) the company’s Zacks Rank #3 somewhat dims the sparkle.
Notably, the industry has outperformed the broader market over the last year, as you can see below:
Despite some negative factors, the fact remains that CalAtlantic has achieved phenomenal earnings growth and its price has not yet appreciated enough to reflect the same. This indicates that the company remains a strong value proposition.
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.
5 Trades Could Profit "Big-League" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>
Image: Bigstock
Will CalAtlantic (CAA) Prove to be a Suitable Value Pick?
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 CalAtlantic Group, Inc. 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, CalAtlantic has a trailing twelve months PE ratio of 9.36. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.35.
If we focus on the long-term trend of the stock the current level puts CalAtlantic’s current PE near its historical lows. The current PE is well below its median for the term (which stands at 16.29), and the number has been falling rapidly since the highs of 2012. Thus, the present level seems to be a suitable entry point for the stock in this respect.
Since a stock’s PE is based on only two inputs, we tried to figure out the reason behind the consistently falling PE metric. It could either be constantly bad price performance or a favorable earnings trend. We find that in the case of CalAtlantic, steady earnings growth has been the driving factor for the falling PE multiple, as can be figured out from the graph below:
Currently, the stock’s PE also compares favorably with the Zacks classified Building Products - Home Builders industry’s trailing twelve months PE ratio, which stands at 14.26. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
The above chart depicts the PE trend as compared with the industry (we have excluded the outliers experienced in 2012 to make the trend clearer). Thus, we can see that over the last 1.5 years, CalAtlantic has been trading consistently cheaper than its close peers.
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, CalAtlantic has a P/S ratio of about 0.70. This is lower than the Zacks categorized Building – Residential Commercial industry average, which comes in at 1.03 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
This clearly suggests some level of undervalued trading for CAA—at least compared to historical norms.
Broad Value Outlook
In aggregate, CalAtlantic 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 CalAtlantic a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 0.92, lower than the industry average of 1.28.
Furthermore, the EV/EBITDA for CalAtlantic is just 8.42, a level that is far lower than the industry average of 11.13. The EV/EBITDA multiple (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) is capital structure-neutral, as it takes into account the level of debt on a company’s balance sheet, not just its equity. Since the Building Products - Home Builders industry is highly capital-intensive, it makes sense to compare based on this ratio too.
Clearly, CAA is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CalAtlantic 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 ‘C’ and a Momentum score of ‘B’. This gives CAA 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, CalAtlantic seems to have pretty striking prospects.
However, the company’s recent earnings estimates have been mixed at best. The current quarter has seen three estimates go higher in the past thirty days compared to one lower, while the full year estimate has seen two upward revisions versus one downward 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 in the past month, while the full year estimate has declined 0.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
CalAtlantic Group, Inc. Price and Consensus
CalAtlantic Group, Inc. Price and Consensus | CalAtlantic Group, Inc. Quote
The combination of these somewhat mixed factors is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
CalAtlantic is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Although boasting of a formidable industry rank (Top 25% out of more than 250 industries) the company’s Zacks Rank #3 somewhat dims the sparkle.
Notably, the industry has outperformed the broader market over the last year, as you can see below:
Despite some negative factors, the fact remains that CalAtlantic has achieved phenomenal earnings growth and its price has not yet appreciated enough to reflect the same. This indicates that the company remains a strong value proposition.
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.
5 Trades Could Profit "Big-League" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>