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 Ally Financial Inc. ( ALLY Quick Quote ALLY - 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, Ally Financial has a trailing twelve months PE ratio of 9.64, 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 27.7. If we focus on the long-term PE trend Ally Financial’s PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point. However, the stock’s PE also compares unfavorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 18.87. At the very least, this indicates that the stock is slightly undervalued right now, compared to its peers. We should also point out that Ally Financial has a forward PE ratio (price relative to this year’s earnings) of just 8.95, so it is fair to say that a slightly more value-oriented path may be ahead for Ally Financial’s 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, Ally Financial has a P/S ratio of about 1.87. This is substantially lower than the S&P 500 average, which comes in at 5.18 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years. Broad Value Outlook
In aggregate, Ally Financial currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Ally Financial a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio for Ally Financial comes in at 7.24, which is better than the industry average of 7.49. Clearly, ALLY is a solid choice on the value front from multiple angles. What About the Stock Overall?
Though Ally Financial 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 Ally Financial a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>) Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter estimate witnessed five upward revisions in the past sixty days compared to no downward revision, while the current year estimate witnessed four upward revisions compared to no downward revision in the same time period. This has had a noticeable impact on the consensus estimate, as the current quarter consensus estimate improved 28.8% in the past two months, whereas the current year estimate improved 33.5% in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below: Ally Financial Inc. Price and Consensus
Notably, the stock with favorable estimate trends has a Zacks Rank #1 (Strong Buy), which is why we are looking for outperformance from the company in the near term.
Ally Financial 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 #2 company flaunts a robust industry rank (among the top 9%), 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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