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Is It Wise to Consider Cathay General (CATY) a Great Value Stock?
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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 Cathay General Bancorp (CATY - 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, Cathay General has a trailing twelve months PE ratio of 16.81, 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 20.204. If we focus on the long-term PE trend, Cathay General’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 20.05. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Cathay General has a forward PE ratio (price relative to this year’s earnings) of just 15.27, so it is fair to say that a slightly more value-oriented path may be ahead for Cathay General 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, Cathay General’s P/CF ratio of 13.71 is higher than the Zacks classified Banks-Westindustry average of 15.96, which indicates that the stock is somewhat overvalued in this respect.
Broad Value Outlook
In aggregate, Cathay General 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 Cathay General a solid choice for value investors.
What About the Stock Overall?
Though Cathay General 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 ‘D’. This gives CATY a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty discouraging. Although neither the current quarter, nor the full year estimate has seen any revision, both of them have declined by 1.6% in the past two months.
You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bearish trend 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
Cathay General is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 25% out of more than 250 industries) further strengthens its 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, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
More Stock News: 8 Companies Verge on Cathay General-Like Run
Did you miss Cathay General's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Cathay General in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>
Unique Zacks Analysis of Your Chosen Ticker
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Is It Wise to Consider Cathay General (CATY) a Great Value Stock?
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 Cathay General Bancorp (CATY - 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, Cathay General has a trailing twelve months PE ratio of 16.81, 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 20.204. If we focus on the long-term PE trend, Cathay General’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 20.05. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Cathay General has a forward PE ratio (price relative to this year’s earnings) of just 15.27, so it is fair to say that a slightly more value-oriented path may be ahead for Cathay General 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, Cathay General’s P/CF ratio of 13.71 is higher than the Zacks classified Banks-Westindustry average of 15.96, which indicates that the stock is somewhat overvalued in this respect.
Broad Value Outlook
In aggregate, Cathay General 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 Cathay General a solid choice for value investors.
What About the Stock Overall?
Though Cathay General 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 ‘D’. This gives CATY a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty discouraging. Although neither the current quarter, nor the full year estimate has seen any revision, both of them have declined by 1.6% in the past two months.
You can see the consensus estimate trend and recent price action for the stock in the chart below:
Cathay General Bancorp Price and Consensus
Cathay General Bancorp Price and Consensus | Cathay General Bancorp Quote
This bearish trend 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
Cathay General is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 25% out of more than 250 industries) further strengthens its 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, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
More Stock News: 8 Companies Verge on Cathay General-Like Run
Did you miss Cathay General's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Cathay General in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>