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 KNOT Offshore Partners LP (KNOP Quick QuoteKNOP - 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, KNOT Offshore Partners has a trailing twelve months PE ratio of 10.44, 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 20.04. If we focus on the long-term PE trend, KNOT Offshore Partners’ current PE level puts it above its midpoint over the past three years.

Further, the stock’s PE also compares favorably with the Zacks classified Transportation-Ship industry’s trailing twelve months PE ratio, which stands at 52.73. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that KNOT Offshore Partners has a forward PE ratio (price relative to this year’s earnings) of 10.84, so it is fair to say that a the stock price might slightly appreciate in 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, KNOT Offshore Partners’ P/CF ratio of 5.63 is lower than the Zacks classified Transportation- Shipindustry average of 7.58, which indicates that the stock is somewhat undervalued in this respect.

Broad Value Outlook

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

For example, the PEG ratio for KNOT Offshore Partners is just 1.51, a level that is lower than the industry average of 1.69. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, KNOP is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though KNOT Offshore Partners 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 ‘C’ and a Momentum score of ‘A’. This gives KNOP 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 pretty encoraging. The current quarter has seen one estimate going higher in the past sixty days compared to none lower, while the full year estimate has seen one upward and one downward movement in the same time period.

This has had a significant impact on the consensus estimate as the current quarter consensus estimate has risen by 13.3% in the past two months and the full year estimate has gone up by 8.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

KNOT Offshore Partners LP Price and Consensus

Despite this somewhat favorable trend, the stock has just a Zacks Rank #3 (Hold) and that is why we are looking for better performance from the company in the near term.

Bottom Line

KNOT Offshore Partners is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 42% out of more than 250 industries) strengthens its growth potential.

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.

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