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Is Kemet Corporation (KEM) a Strong Value Stock?

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Value investors are constantly looking for a good bargain—any means by which to take advantage of an undervalued stock on the rise. With so many factors to consider, let’s take a closer look at why Kemet Corporation (KEM - Free Report) may be the solution to the struggle of finding true value stocks.

Kemet Corporation is a global supplier of electronic components with a specialty in capacitators. It is currently holding a “B” grade for Momentum and “A” grades for both Value and Growth, culminating in its “A” overall VGM grade in our Style Scores system.

Kemet has been graded remarkably well in every category, but here is a breakdown of what makes the company such a strong value pick and overall stock.

Breakdown

The underlying principle in value investing is to find stocks that are undervalued at their current level. A comprehensive manner of doing such is looking at metrics like Price/Earnings ratio, Price/Book ratio, and Cash Flow/Share.

The P/E ratio is a good indicator of value, with lower P/Es tending to correlate to better value. Kemet has a ratio of 9.4, close to half the industry average of 19.2. The typical value investor looks for a P/E ratio below 20, and seeing as Kemet trades at a discount to this ideal ratio and its industry’s average, we can see why this is considered an “A” value stock.

The Price/Book is a means of comparing a company’s stock price to its intrinsic value. It is particularly relevant to the industry in which the company lies. Kemet currently has a P/B of 2.3, which is a slight premium to the industry average of about 2.0. This may seem like a negative, but when we take into consideration Kemet’s P/E and other factors, we can see that KEM might still be a bargain.

There are often stability concerns when it comes to value investments, i.e. the age old principle that if it is cheap, something must be wrong. Kemet’s Cash Flow/Share is currently $1.23 per share, more than double the industry average of $0.53/share. This confirms the financial stability of the company, leaving investors with no worries in regards to a bad quality stock.

Bottom Line

Kemet holds a Zacks Rank #2 (Buy). This company has all of the right numbers to be a great value option, and on top of that, sports solid Momentum and Growth ranks. Overall, KEM is a very solid and profitable value stock to consider.

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