We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Is Reliance Steel (RS) a Great Stock for Value Investors?
Read MoreHide Full Article
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 Reliance Steel & Aluminum Co. (RS - 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, Reliance Steel has a trailing twelve months PE ratio of 18.88. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.59.
If we focus on the long-term trend of the stock the current level puts Reliance Steel’s current PE among its highs over the past five years. This suggests that the stock is somewhat overvalued compared to its own historical levels and thus it would be prudent to wait for a more suitable entry point to emerge.
Further, the stock’s PE also compares considerably favorably with the Zacks classified Industrial Products sector’s trailing twelve months PE ratio, which stands at 22.45. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, the stock has historically always been undervalued than its peers.
We should also point out that Reliance Steel has a forward PE ratio (price relative to this year’s earnings) of 15.95 – which is considerably lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Reliance Steel stock in the near term too.
PS 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, Reliance Steel has a P/S ratio of about 0.72. This is significantly lower than the Zacks categorized Industrial Products sector average, which comes in at 2.17 right now. In fact, the stock has always been relatively undervalued compared to the industry, in this respect.
Notably, RS is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Reliance Steel 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 Reliance Steel a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 1.47, much lower than the sector average of 4.23. Clearly, RS is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Reliance Steel 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 ‘B’. This gives RS a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Reliance Steel seems to have pretty striking prospects. Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen no estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen three upward revisions and two downward revisions in the same time period.
This has had a just a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past month, while the full year estimate has inched higher by 0.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat mixed 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
Reliance Steel is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. It forms a part of the Zacks Categorized Metal Products - Distribution industry, which ranks among the Top 43% out of more than 250 industries. The industry is seeing strength in demand and pricing across the aerospace and automotive markets, supported by higher commercial aerospace build rates and increased use of aluminum in automotives.
Reliance Steel is thus poised to gain from expected sustained momentum across these markets in 2017, coupled with its aggressive acquisition strategy, broad and diversified product base as well as wide geographic footprint.
So, value investors might want to wait for price to correct downwards a bit first, but once that happens, this stock could be a compelling pick.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Is Reliance Steel (RS) a Great 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 Reliance Steel & Aluminum Co. (RS - 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, Reliance Steel has a trailing twelve months PE ratio of 18.88. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.59.
If we focus on the long-term trend of the stock the current level puts Reliance Steel’s current PE among its highs over the past five years. This suggests that the stock is somewhat overvalued compared to its own historical levels and thus it would be prudent to wait for a more suitable entry point to emerge.
Further, the stock’s PE also compares considerably favorably with the Zacks classified Industrial Products sector’s trailing twelve months PE ratio, which stands at 22.45. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, the stock has historically always been undervalued than its peers.
We should also point out that Reliance Steel has a forward PE ratio (price relative to this year’s earnings) of 15.95 – which is considerably lower than the current figure. So it is fair to say that a slightly more value-oriented path may be ahead for Reliance Steel stock in the near term too.
PS 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, Reliance Steel has a P/S ratio of about 0.72. This is significantly lower than the Zacks categorized Industrial Products sector average, which comes in at 2.17 right now. In fact, the stock has always been relatively undervalued compared to the industry, in this respect.
Notably, RS is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Reliance Steel 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 Reliance Steel a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 1.47, much lower than the sector average of 4.23. Clearly, RS is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Reliance Steel 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 ‘B’. This gives RS a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Reliance Steel seems to have pretty striking prospects.
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen no estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen three upward revisions and two downward revisions in the same time period.
This has had a just a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past month, while the full year estimate has inched higher by 0.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Reliance Steel & Aluminum Co. Price and Consensus
Reliance Steel & Aluminum Co. Price and Consensus | Reliance Steel & Aluminum Co. Quote
This somewhat mixed 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
Reliance Steel is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. It forms a part of the Zacks Categorized Metal Products - Distribution industry, which ranks among the Top 43% out of more than 250 industries. The industry is seeing strength in demand and pricing across the aerospace and automotive markets, supported by higher commercial aerospace build rates and increased use of aluminum in automotives.
Reliance Steel is thus poised to gain from expected sustained momentum across these markets in 2017, coupled with its aggressive acquisition strategy, broad and diversified product base as well as wide geographic footprint.
So, value investors might want to wait for price to correct downwards a bit first, but once that happens, this stock could be a compelling pick.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>