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Can Value Investors Consider BanColombia as a Great 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  BanColombia S.A. (CIB - 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, Bancolombia has a trailing twelve months PE ratio of 11.76, 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 compares in at about 19.95. If we focus on the stock’s long-term PE trend, the current level puts Bancolombia’s current PE ratio below its midpoint over the past five years, with the number having risen rapidly over the past few months.

Further, the stock’s PE also compares favorably with the Zacks classified Banks-Foreign industry’s trailing twelve months PE ratio, which stands at 15.82. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Bancolombia has a forward PE ratio (price relative to this year’s earnings) of just 10.33, so it is fair to say that a slightly more value-oriented path may be ahead for Bancolombia stock in the near term too.

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, Bancolombia has a P/S ratio of about 1.72. This significantly 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, CIB 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, Bancolombia 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 Bancolombia a solid choice for value investors.

What About the Stock Overall?

Though Bancolombia 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 ‘D’. This gives CIB 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 recent earnings estimates have been following somewhat bearish trend. The current year has seen no estimates going higher in the past sixty days compared to one lower. The next year estimate has also seen no upward and two downward revisions in the same time period.

As a result, while the current year consensus estimate has fallen by 2% in the past two months, the same for next year has gone down by 0.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

BanColombia S.A. Price and Consensus

BanColombia S.A. Price and Consensus | BanColombia S.A. Quote

This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

Bancolombia 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 30% out of more than 250 industries) further supports the growth potential of the stock. However, over the past two years, the Zacks Banks- Foreign 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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