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 Santander Consumer USA Holdings Inc. (SC - 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, Santander Consumer has a trailing twelve months PE ratio of 6.81, 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 20.50. While Santander Consumer’s current PE level puts it slightly above its midpoint over the past five years, it stands well 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 15.85. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should point out that Santander Consumer has a forward PE ratio (price relative to this year’s earnings) of 7.63, so it is fair to expect an increase in the company’s share price in the near future.
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, Santander Consumer has a P/S ratio of about 0.68. This is much 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, Santander Consumer 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 Santander Consumer a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio (another great indicator of value) for Santander Consumer comes in at 0.90, which is far better than the industry average of 3.04. Clearly, SC is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Santander Consumer 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 ‘F’. This gives SC a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one upward and downward estimate revision, in the past sixty days, while the full year estimate has seen one upward and two downward revisions in the same time period.
This has had a negative impact on the consensus estimate, as the current quarter consensus estimate has declined by 3.1% in the past two months, while the full year estimate has tumbled 7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
In light of these bearish trends, 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.
Santander Consumer is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 28% out of over 250 Zacks industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks categorized Finance – Consumer Loans industry has clearly underperformed the broader market, as you can see below:
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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