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Is Encore Wire (WIRE) a Suitable Stock for Value Investors?
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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 Encore Wire Corporation (WIRE - 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, Encore Wire has a trailing twelve months PE ratio of 3.17, as you can see in the chart below:
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 18.04. If we focus on the long-term PE trend, Encore Wire’s current PE level puts it below its midpoint over the past five years.
Image Source: Zacks Investment Research
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 4.59. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
Image Source: Zacks Investment Research
However, we should point out that Encore Wire has a forward PE ratio (price relative to this year’s earnings) of 5.32, so we might say that the forward earnings estimates indicate that the company’s share price will likely appreciate in the near future.
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, Encore Wire has a P/S ratio of about 0.72. This is lower than the S&P 500 average, which comes in at 3.52 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.
Image Source: Zacks Investment Research
If anything, WIRE 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, Encore Wire 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 Encore Wire a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 3.66, which is better than the industry average of 5.80. Clearly, WIRE is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Encore Wire 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 A and a Momentum score of A. This gives WIRE 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 not been very encouraging. The current quarter as well as the full year has seen no estimate revisions in the past sixty days.
As a result, the current quarter as well as the full year consensus estimate has been unchanged over the past two months.
This unfavorable trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
Encore Wire is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 2% out of more than 250 industries) further supports the growth potential of the stock. In fact, over the past two years, the industry has outperformed the broader market, as you can see below:
Image Source: Zacks Investment Research
However, with a Zacks Rank #3, it is hard to get too excited about this company overall. So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Is Encore Wire (WIRE) a Suitable Stock for Value Investors?
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 Encore Wire Corporation (WIRE - 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, Encore Wire has a trailing twelve months PE ratio of 3.17, as you can see in the chart below:
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 18.04. If we focus on the long-term PE trend, Encore Wire’s current PE level puts it below its midpoint over the past five years.
Image Source: Zacks Investment Research
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 4.59. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
Image Source: Zacks Investment Research
However, we should point out that Encore Wire has a forward PE ratio (price relative to this year’s earnings) of 5.32, so we might say that the forward earnings estimates indicate that the company’s share price will likely appreciate in the near future.
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, Encore Wire has a P/S ratio of about 0.72. This is lower than the S&P 500 average, which comes in at 3.52 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.
Image Source: Zacks Investment Research
If anything, WIRE 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, Encore Wire 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 Encore Wire a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (another great indicator of value) comes in at 3.66, which is better than the industry average of 5.80. Clearly, WIRE is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Encore Wire 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 A and a Momentum score of A. This gives WIRE 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 not been very encouraging. The current quarter as well as the full year has seen no estimate revisions in the past sixty days.
As a result, the current quarter as well as the full year consensus estimate has been unchanged over the past two months.
This unfavorable trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
Encore Wire is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 2% out of more than 250 industries) further supports the growth potential of the stock. In fact, over the past two years, the industry has outperformed the broader market, as you can see below:
Image Source: Zacks Investment Research
However, with a Zacks Rank #3, it is hard to get too excited about this company overall. So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.