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 AerCap Holdings N.V. (AER - 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, AerCap Holdings has a trailing twelve months PE ratio of 7.07, 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 20.36. If we focus on the long-term PE trend, AerCap Holdings’ current PE level puts it about a notch below its midpoint over the past five years. Moreover, the current level stands way below the highs for the stock, suggesting that it could be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks classified Finance sector’s trailing twelve months PE ratio, which stands at 15.78. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that AerCap Holdings’ 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.
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, AerCap Holdings has a P/S ratio of about 1.66. This is quite lower than the S&P 500 average, which comes in at 3.16 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, AerCap Holdings 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 AerCap Holdings a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for AerCap Holdings is just 0.82, a level that is lower than the industry average of 1.36. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, AER is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though AerCap Holdings 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 AER a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the current quarter and full year estimates have witnessed one downward revision each, in the past sixty days compared to no upward revisions. Nevertheless, the current quarter consensus estimate has risen by nearly 2% in the past two months, while the full year estimate has increased 3.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
However, the stock has just a Zacks Rank #3 (Hold), which indicates why we are looking for in-line performance from the company in the near term.
AerCap Holdings 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 8%, which indicates that broader factors are favorable for the company. Further, over the past one year, the Zacks categorized Finance – Leasing Companies 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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