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Does magicJack Offer a Good Value Buying Opportunity Now?

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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 magicJack VocalTec Ltd. 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, magicJack has a trailing twelve months PE ratio of 10.89, 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 20.33. If we focus on the long-term PE trend, magicJack’s current PE level puts it above its midpoint (which stands at 7.09) over the past five years. However, the current PE reading is way lower than its highs, indicating that the scrip is undervalued at current levels, when compared to its historical trends.

Moreover, the stock’s PE compares favorably with the Zacks classified Computer and Technology sector’s trailing twelve months PE ratio, which stands at 22.04. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that magicJack has a forward PE ratio (price relative to this year’s earnings) of 11.47, so it is fair to expect an increase in the company’s share price in the near future.

P/CF Ratio

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.

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. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, magicJack’s P/CF ratio of 14.16 is lower than the Zacks classified Internet - Software industry’s average of 27.29, which indicates that the stock is somewhat undervalued in this respect.

Broad Value Outlook

In aggregate, magicJack 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 magicJack a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/S ratio (another great indicator of value) of magicJack comes in at 1.52, which is far better than the industry average of 3.26. Clearly, CALL is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though magicJack 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 ‘F’ and a Momentum score of ‘C’. This gives CALL 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 earnings estimates have been decidedly bullish. The current year has seen one estimate go higher in the past sixty days compared to none lower, while the next year estimate has also seen one upward revision and no downward revision in the same time period.

This has had a positive impact on the consensus estimate, as the current year consensus estimate has improved 2.7% in the last sixty days, while the next year estimate has increased by an impressive 12% over the same time frame.

You can see the consensus estimate trend and recent price action for the stock in the chart below:

This bullish trend might be why the stock has a Zacks Rank #2 (Buy) and why we are expecting outperformance from the company in the near term.

Bottom Line

magicJack is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, with a good industry rank (Top 38% out of more than 250 industries) and a Zacks Rank #2 (Buy), the stock looks attractive at current valuations.

With broader factors working in its favor, bullish analyst sentiment and robust value metrics, we believe investors have a strong value contender in magicJack.

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