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Is Archer Daniels (ADM) 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 Archer Daniels Midland Company (ADM - 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, Archer Daniels has a trailing twelve months PE ratio of 16.6, 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 19.8. If we focus on the long-term PE trend, Archer Daniels’ current PE level puts it below its midpoint of 17.1 over the past five years. Moreover, the current level stands quite lower than the highs for the stock, suggesting that it could be a solid entry point.
Further, the stock’s PE compares favorably with the Zacks Consumer Staples sector’s trailing twelve months PE ratio, which stands at 25.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Archer Daniels’ forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
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, Archer Daniels has a P/S ratio of about 0.4. This is much lower than the S&P 500 average, which comes in at 3.1 right now. Thus, the stock is undervalued from this aspect too.
Broad Value Outlook
In aggregate, Archer Daniels 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 Archer Daniels a solid choice for value investors.
What About the Stock Overall?
Though Archer Daniels 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 and Momentum score of D, each. This gives ADM a Zacks VGM score—or its overarching fundamental grade—of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been quite disappointing. The current quarter has seen three estimates go lower in the past sixty days compared to one upward revision, while the full year estimate has seen four downward and one upward revision in the same time period.
This has had a negative impact on the consensus estimate, as the current quarter consensus estimate has dropped by 5.9% in the past two months, while the full year estimate has inched lower by 1.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
In light of these bearish trends, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Bottom Line
Archer Daniels is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite a Zacks Rank #3, the company has a solid Zacks Industry Rank (Top 32% out of over 250 Zacks industries) which hints at favorable broader factors.
So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
Image: Bigstock
Is Archer Daniels (ADM) 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?
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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 Archer Daniels Midland Company (ADM - 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, Archer Daniels has a trailing twelve months PE ratio of 16.6, 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 19.8. If we focus on the long-term PE trend, Archer Daniels’ current PE level puts it below its midpoint of 17.1 over the past five years. Moreover, the current level stands quite lower than the highs for the stock, suggesting that it could be a solid entry point.
Further, the stock’s PE compares favorably with the Zacks Consumer Staples sector’s trailing twelve months PE ratio, which stands at 25.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Archer Daniels’ forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.
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, Archer Daniels has a P/S ratio of about 0.4. This is much lower than the S&P 500 average, which comes in at 3.1 right now. Thus, the stock is undervalued from this aspect too.
Broad Value Outlook
In aggregate, Archer Daniels 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 Archer Daniels a solid choice for value investors.
What About the Stock Overall?
Though Archer Daniels 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 and Momentum score of D, each. This gives ADM a Zacks VGM score—or its overarching fundamental grade—of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been quite disappointing. The current quarter has seen three estimates go lower in the past sixty days compared to one upward revision, while the full year estimate has seen four downward and one upward revision in the same time period.
This has had a negative impact on the consensus estimate, as the current quarter consensus estimate has dropped by 5.9% in the past two months, while the full year estimate has inched lower by 1.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
In light of these bearish trends, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Bottom Line
Archer Daniels is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite a Zacks Rank #3, the company has a solid Zacks Industry Rank (Top 32% out of over 250 Zacks industries) which hints at favorable broader factors.
So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
Learn the secret >>