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Should Value Investors Buy Mercantile Bank (MBWM) Stock?

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Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One stock to keep an eye on is Mercantile Bank (MBWM - Free Report) . MBWM is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value.

Another valuation metric that we should highlight is MBWM's P/B ratio of 0.92. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. MBWM's current P/B looks attractive when compared to its industry's average P/B of 1.41. MBWM's P/B has been as high as 1.49 and as low as 0.65, with a median of 0.86, over the past year.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. MBWM has a P/S ratio of 2.13. This compares to its industry's average P/S of 2.15.

Finally, investors should note that MBWM has a P/CF ratio of 7.49. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. MBWM's P/CF compares to its industry's average P/CF of 13.36. MBWM's P/CF has been as high as 10.63 and as low as 5.19, with a median of 6.66, all within the past year.

Value investors will likely look at more than just these metrics, but the above data helps show that Mercantile Bank is likely undervalued currently. And when considering the strength of its earnings outlook, MBWM sticks out at as one of the market's strongest value stocks.


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