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 Invesco Mortgage Capital Inc. (IVR Quick QuoteIVR - 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, Invesco Mortgage has a trailing twelve months PE ratio of 9.8, 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 19.84. If we focus on the long-term PE trend, Invesco Mortgage’s current PE level puts it above its midpoint of 7.68 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 Finance sector’s trailing twelve months PE ratio, which stands at 14.72. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
 


We should also point out that Invesco Mortgage’s forward PE is roughly same as its trailing twelve months value, so we might say that the forward earnings estimates are incorporated in the company’s share price as of now. We define forward PE as current price relative to the Zacks Consensus Estimate for the current fiscal year.

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, Invesco Mortgage has a P/S ratio of about 2.43. This is lower than the S&P 500 average, which comes in at 3.18 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.



Broad Value Outlook

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

For example, Invesco Mortgage’s P/CF ratio (another great indicator of value) comes in at 5.48, which is far better than the industry average of 6.60. Clearly, IVR is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Invesco Mortgage 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 ‘F’. This gives IVR 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 reveal that both, the current quarter and full year estimates have seen one upward and downward revision each, in the past sixty days.  

This has had just a slightly positive impact on the consensus estimate, as full year estimate has inched higher by 1.3%, while the current quarter consensus estimate has been unchanged in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

However, this slightly bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the positive analyst sentiment hints at favorable future prospects.

Bottom Line

Invesco Mortgage is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 35%, which indicates that broader factors are favorable for the company. Further, over the past one year (especially from the beginning of 2017), the Zacks categorized REIT – Mortgage Trust industry has outperformed the broader market, as you can see below:



So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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