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 Signet Jewelers Limited (SIG - 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:
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, Signet has a trailing twelve months PE ratio of 13.43, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.61. If we focus on the long-term PE trend, Signet’s current PE level puts it below its midpoint over the past five years, which stands at 16.08. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.
Further, the stock’s PE also compares favorably with the Zacks classified Retail-Jewelry Stores industry’s trailing twelve months PE ratio, which stands at 16.89. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Signet has a forward PE ratio (price relative to this year’s earnings) of just 12.62, so it is fair to say that a slightly more value-oriented path may be ahead for Signet stock in the near term too.
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, Signet has a P/S ratio of about 1.06. This is lower than the S&P 500 average, which comes in at 2.93 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 three years.
If anything, SIG 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, Signet currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Signet a good choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Signet is just 1.26, a level that is lower than the industry average of 1.71. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, SIG is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Signet 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 ‘D’ and a Momentum score of ‘B’. This gives SIG 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 fairly encouraging. The current quarter has seen three estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen five upward and no downward revision in the same time frame.
This has also had a favorable impact on the consensus estimate as the current quarter consensus estimate has risen 1.2% in the past two months, while the full year estimate has improved 3.2%.
You can see the consensus estimate trend and recent price action for the stock in the chart below:
SIGNET JEWELERS Price and Consensus
However, this positive trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. However, the definite bullish analyst sentiment indicates that the stock’s growth story is intact.
Signet is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 4%, indicating that broader factors are favorable for the company. Further, the Zacks categorized Retail-Jewelry Stores industry has outperformed the broader market in the last six months, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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