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Should Value Investors Pick WestRock Company (WRK) Stock?

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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 WestRock Company (WRK - 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, WestRock Company has a trailing twelve months PE ratio of 9.92, as you can see in the chart below:
 

Zacks Investment Research
Image Source: Zacks Investment Research

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 17.35. If we focus on the long-term PE trend, WestRock Company’s current PE level puts it below its midpoint over the past five years.
 

Zacks Investment Research
Image Source: Zacks Investment Research

However, the stock’s PE compares unfavorably with the sector’s trailing twelve months PE ratio, which stands at 7.18. This indicates that the stock is relatively overvalued right now, compared to its peers.
 

Zacks Investment Research
Image Source: Zacks Investment Research

Nevertheless, we should point out that WestRock Company has a forward PE ratio (price relative to this year’s earnings) of just 8.04, so it is fair to say that a slightly more value-oriented path may be ahead for WestRock Company stock in the near term.

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, WestRock Company has a P/S ratio of about 0.53. This is lower than the S&P 500 average, which comes in at 3.39 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
 

Zacks Investment Research
Image Source: Zacks Investment Research

If anything, WRK is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, WestRock Company 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 WestRock Company a solid choice for value investors.

What About the Stock Overall?

Though WestRock Company 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 of C and a Momentum score of D. This gives WRK 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 fiscal quarter has seen three estimates go higher in the past sixty days compared to one lower, while the fiscal full year estimate has seen five upward and one downward revision in the same time period.

As a result, the current fiscal quarter consensus estimate has risen by 6.4% in the past two months, while the fiscal full year estimate has increased 6.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Even though WestRock Company has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.

Bottom Line

WestRock Company is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a solid industry rank (among the Top 12%), WestRock Company looks like a strong value contender. In fact, over the past two years, the industry has clearly outperformed the broader market, as you can see below:
 

Zacks Investment Research
Image Source: Zacks Investment Research

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this stock a compelling value pick.


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