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 AstraZeneca PLC (AZN - 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, AstraZeneca has a trailing twelve months PE ratio of 7.04, 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 19.93. If we focus on the long-term PE trend, AstraZeneca’s current PE is little below its mid point level, with the number having falling rapidly over the last few months. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.
Furthermore, the stock’s PE also compares favorably with the Zacks classified Large Cap Pharmaceuticals industry’s trailing twelve months PE ratio, which stands at 15.11. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
However, we should also point out that AstraZeneca has a forward PE ratio (price relative to this year’s earnings) of 15.02, so it is fair to expect an increase in the company’s share price in the near future.
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, AstraZeneca has a P/S ratio of about 1.52. This is lower than the S&P 500 average, which comes in at 2.98 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.
If anything, AZN 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, AstraZeneca 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 AstraZeneca a solid choice for value investors.
What About the Stock Overall?
Though AstraZeneca 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’. As a result, AstraZeneca has a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s estimate revision trend has been mixed at its best. The current quarter has seen no estimate go higher in the past thirty days compared to one lower, while the full year estimate has seen no movement in either direction in the same time period.
This has had a mixed impact on the consensus estimate as the current quarter estimate has plunged by 11.8% over the past one month, while the full year estimate has remained flat. You can see the consensus estimate trend and recent price action for the stock in the chart below:
AstraZeneca is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 32%) and a Zacks Rank #4 (Sell), it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Large Cap Pharmaceuticals industry has clearly underperformed the broader market, as you can see below:
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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