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Is Reliance Steel a Great Stock for Value Investors?
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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 Reliance Steel & Aluminum Co. (RS - 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, Reliance Steel has a trailing twelve months PE ratio of 14.11, 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 compares in at about 19.89. If we focus on the stock’s long-term PE trend, the current level puts Reliance Steel’s current PE ratio below its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the broader industry’s trailing twelve months PE ratio, which stands at 15.59. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Reliance Steel has a forward PE ratio (price relative to this year’s earnings) of just 13.93, so it is fair to say that a slightly more value-oriented path may be ahead for Reliance Steel stock in the near term too.
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, Reliance Steel has a P/S ratio of about 0.57. This is significantly lower than the S&P 500 average, which comes in at 3.12 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.
Broad Value Outlook
In aggregate, Reliance Steel currently has a Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Reliance Steel a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Reliance Steel is just 1.55, a level that is lower than the industry average of 1.61. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Reliance Steel 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 ‘F’. This gives RS a 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 unfavorable. The current quarter has seen four estimates go lower in the past sixty days, while the full year estimate has seen seven down in the same time period.
This has had a significant impact on the consensus estimate as the current quarter consensus estimate has dropped by 8.1% in the past two months, while the full year estimate has dropped by 3.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite the bearish analyst sentiments, the stock holds a Zacks Rank #3 (Hold). Thus, we are looking for in-line performance from the company in the near term
Bottom Line
Reliance Steel is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a top industry rank (among Top 10% of more than 250 industries) instills our confidence on the stock.
On the flipside, over the past two years, the broader industry has clearly underperformed the market at large, 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.
4 Surprising Tech Stocks to Keep an Eye On
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Is Reliance Steel a Great Stock for Value Investors?
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 Reliance Steel & Aluminum Co. (RS - 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, Reliance Steel has a trailing twelve months PE ratio of 14.11, 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 compares in at about 19.89. If we focus on the stock’s long-term PE trend, the current level puts Reliance Steel’s current PE ratio below its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with the broader industry’s trailing twelve months PE ratio, which stands at 15.59. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Reliance Steel has a forward PE ratio (price relative to this year’s earnings) of just 13.93, so it is fair to say that a slightly more value-oriented path may be ahead for Reliance Steel stock in the near term too.
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, Reliance Steel has a P/S ratio of about 0.57. This is significantly lower than the S&P 500 average, which comes in at 3.12 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.
Broad Value Outlook
In aggregate, Reliance Steel currently has a Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Reliance Steel a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Reliance Steel is just 1.55, a level that is lower than the industry average of 1.61. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Reliance Steel 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 ‘F’. This gives RS a 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 unfavorable. The current quarter has seen four estimates go lower in the past sixty days, while the full year estimate has seen seven down in the same time period.
This has had a significant impact on the consensus estimate as the current quarter consensus estimate has dropped by 8.1% in the past two months, while the full year estimate has dropped by 3.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Reliance Steel & Aluminum Co. Price and Consensus
Reliance Steel & Aluminum Co. Price and Consensus | Reliance Steel & Aluminum Co. Quote
Despite the bearish analyst sentiments, the stock holds a Zacks Rank #3 (Hold). Thus, we are looking for in-line performance from the company in the near term
Bottom Line
Reliance Steel is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a top industry rank (among Top 10% of more than 250 industries) instills our confidence on the stock.
On the flipside, over the past two years, the broader industry has clearly underperformed the market at large, 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.
4 Surprising Tech Stocks to Keep an Eye On
Tech stocks have been a major force behind the market’s record highs, but picking the best ones to buy can be tough. There’s a simple way to invest in the success of the entire sector. Zacks has just released a Special Report revealing one thing tech companies literally cannot function without. More importantly, it reveals 4 top stocks set to skyrocket on increasing demand for these devices. I encourage you to get the report now – before the next wave of innovations really take off.
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