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Does BASF (BASFY) Look to be a Great Stock for Value Investors?

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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 BASF SE (BASFY - 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, BASF has a trailing twelve months PE ratio of 18.59, 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 20.17. If we focus on the stock’s long-term PE trend, the current level puts BASF’s current PE ratio at its highs over the past five years, with the number having risen rapidly over the past few months. This suggests that the stock is overvalued compared to its own historical levels and thus, the current price might not be a suitable entry point from this viewpoint.

Further, the stock’s PE also compares favorably with the Zacks classified Basic Materials sector’s trailing twelve months PE ratio, which stands at 21.15. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers

We should also point out that BASF has a forward PE ratio (price relative to this year’s earnings) of just 17.15, so it is fair to say that a slightly more value-oriented path may be ahead for BASF 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, BASF has a P/S ratio of about 1.43. This is lower than the S&P 500 average, which comes in at 3.06 right now. Also, as we can see in the chart below, this multiple is trading at its highest level over the past few years. This suggests that the stock has already appreciated to some degree relative to its sales, as the multiple has been on an uptrend since the beginning of 2016.

Broad Value Outlook

In aggregate, BASF 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 BASF a solid choice for value investors.

What About the Stock Overall?

Though BASF 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 BASFY a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been quite discouraging. The current quarter has seen no estimate going higher in the past sixty days compared to one lower, while the full year estimate has seen one upward and one downward revision in the same time period.

This had a noticeable impact on the consensus estimate as the current quarter consensus estimate has dropped by 5.5% in the past two months and the full year estimate has also declined by 5.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

BASF SE Price and Consensus

BASF SE Price and Consensus | BASF SE Quote

This bearish 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

BASF is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a good industry rank (Top 35% out of more than 250 industries) further bolsters its future growth potential. In fact, over the last one year, the Zacks Basic Materials sector has clearly outperformed the broader market, as you can see below:

However, the stock’s Zacks Rank #3 and negative analyst attention somewhat dims the sparkle. Still, despite the stock trading at historical highs from a P/E and P/S perspective, it’s still undervalued relative to the market. 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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