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Is Chimera Investment a Great Stock for Value Investors?

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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 Chimera Investment Corporation (CIM - 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, Chimera Investment has a trailing twelve months PE ratio of 8.04, 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, Chimera Investment’s current PE level puts it above its midpoint over the past five years.

Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 10.6. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Chimera Investment has a forward PE ratio (price relative to this year’s earnings) of just 7.94, so it is fair to say that a slightly more value-oriented path may be ahead for Chimera Investment stock in the near term too.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate). The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Chimera Investment’s PEG ratio stands at just 1.58, compared with the industry average of 2.16. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Broad Value Outlook

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

For example, its P/CF ratio comes in at 7.94, which is far better than the industry average of 10.22. Clearly, CIM is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Chimera Investment 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 ‘A’. This gives CIM 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 recent earnings estimates have been encouraging. The current quarter consensus estimate has risen by 1.6% in the past two months, while the full year estimate has also moved up by 1.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Chimera Investment Corporation Price and Consensus

 

Chimera Investment Corporation Price and Consensus | Chimera Investment Corporation Quote

Even though Chimera Investment has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.  

Bottom Line

Chimera Investment 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 and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks categorized REIT and Equity Trust industry has clearly underperformed the broader market, as you can see below:

So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

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