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Is Rio Tinto (RIO) a Suitable Stock for Value Investors Now?
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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 Rio Tinto (RIO - 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, Rio Tinto has a trailing twelve months PE ratio of 11.81, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.88. If we focus on the long-term PE trend, Rio Tinto’ current PE level puts it above its midpoint of 10.97 over the past five years. However, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Basic Material sector’s trailing twelve months PE ratio, which stands at 12.58. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Rio Tinto has a forward PE ratio (price relative to this year’s earnings) of just 9.38, so it is fair to say that a slightly more value-oriented path may be ahead for Rio Tinto’ 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, Rio Tinto has a P/S ratio of 1.92. This is much lower than the S&P 500 average, which comes in at 3.26 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Rio Tinto currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Rio Tinto a solid choice for value investors.
What About the Stock Overall?
Though Rio Tinto 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 Score of C and Momentum Score of B. This gives RIO a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen two upward revision in the past sixty days compared to none downward, while the next year estimate has seen one upward revision compared to no downward revision in the same time period.
As a result, the current year consensus estimate increased 21% in the past two months, although the next year estimate decreased 6.73%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Notably, the stock with a solid earnings surprise history has a Zacks Rank #1 (Buy), which is why we are looking for outperformance from the company in the near term.
Bottom Line
Rio Tinto is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, the Zacks Rank #1 company flaunts a robust industry rank (among the top 13%), which indicates that the broader factors are favorable for the company.
So, value investors might want to delve deeper in this stock as it appears to be a compelling pick.
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This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
Image: Bigstock
Is Rio Tinto (RIO) a Suitable Stock for Value Investors Now?
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 Rio Tinto (RIO - 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, Rio Tinto has a trailing twelve months PE ratio of 11.81, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 17.88. If we focus on the long-term PE trend, Rio Tinto’ current PE level puts it above its midpoint of 10.97 over the past five years. However, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Basic Material sector’s trailing twelve months PE ratio, which stands at 12.58. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Rio Tinto has a forward PE ratio (price relative to this year’s earnings) of just 9.38, so it is fair to say that a slightly more value-oriented path may be ahead for Rio Tinto’ 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, Rio Tinto has a P/S ratio of 1.92. This is much lower than the S&P 500 average, which comes in at 3.26 right now. Also, as we can see in
the chart below, this is below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Rio Tinto currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Rio Tinto a solid choice for value investors.
What About the Stock Overall?
Though Rio Tinto 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 Score of C and Momentum Score of B. This gives RIO a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen two upward revision in the past sixty days compared to none downward, while the next year estimate has seen one upward revision compared to no downward revision in the same time period.
As a result, the current year consensus estimate increased 21% in the past two months, although the next year estimate decreased 6.73%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Rio Tinto PLC Price and Consensus
Rio Tinto PLC Price and Consensus | Rio Tinto PLC Quote
Notably, the stock with a solid earnings surprise history has a Zacks Rank #1 (Buy), which is why we are looking for outperformance from the company in the near term.
Bottom Line
Rio Tinto is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, the Zacks Rank #1 company flaunts a robust industry rank (among the top 13%), which indicates that the broader factors are favorable for the company.
So, value investors might want to delve deeper in this stock as it appears to be a compelling pick.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>