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 GKN plc 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, GKN has a trailing twelve months PE ratio of 9.83, 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 19.89. If we focus on the long-term PE trend, GKN’s current PE 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 Auto/Truck Original Equipment industry’s trailing twelve months PE ratio, which stands at 13.34. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.


 
We should also point out that GKN has a forward PE ratio (price relative to this year’s earnings) of just 10.05, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.

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, GKN has a P/S ratio of about 0.66, lower than the S&P 500 average, which comes in at 2.97 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.


 

As we can see, the stock is trading at its median value for the time period from a P/S metric. This does not provide us with a conclusive direction as to the relative valuation of the stock in comparison to its historical trend.

Broad Value Outlook

In aggregate, GKN 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 GKN 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 5.87, which is better than the industry average of 7.97. The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors.  Clearly, GKN is a solid choice on the value front from some angles.

What About the Stock Overall?

Though GKN 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 ‘F’. This gives GKNLY 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 quite encouraging. The current year has seen one downward estimate revisions in the past sixty days compared to none higher. However, the next year has seen one upward estimate revisions compared to none downward  in the same time frame.

As a result the current and next year estimate has inched lower by 2.6% and 2.3%.

In spite of the slightly bearish analyst opinion, the stock’s Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
 
Bottom Line

GKN is an inspired choice for value investors, as it is hard to beat the good lineup of statistics on this front along with a Zacks Rank #2. However, with a sluggish industry rank (Bottom 26% out of more than 250 industries) and bearish analyst sentiment it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Auto/Truck Original Equipment industry has clearly underperformed the broader market, as you can see below:


 
So, value investors might want to wait for the broader factors and analyst sentiments to turn around in this name first, but once that happens, this stock could be a compelling pick.

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