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 Nordstrom, Inc. (JWN - 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, Nordstrom has a trailing twelve months PE ratio of 13.94, 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 20.43. If we focus on the long-term PE trend, Nordstrom’s current PE level puts it below its midpoint over the past five years.
However, the stock’s PE compares unfavorably with the Zacks classified Retail - Apparel and Shoes industry’s trailing twelve months PE ratio, which stands at 11.74. This indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Nordstrom has a forward PE ratio (price relative to this year’s earnings) of 15.01, 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, Nordstrom has a P/S ratio of about 0.52. This is significantly lower than the S&P 500 average, which comes in at 3.10 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, JWN 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, Nordstrom 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 Nordstrom a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/CF ratio (a great indicator of value) comes in at 3.40, which is far better than the industry average of 7.80. Clearly, JWN is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Nordstrom 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 JWN 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 been disappointing. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen one up and seven down in the same time period.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has decreased by 12.9% in the past two months, while the full year estimate has also inched lower by 7.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below: