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 AGNC Investment Corp. (AGNC - 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, AGNC Investment has a trailing twelve months PE ratio of 8.19.
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.04. While AGNC Investment’s current PE level puts it above its midpoint of 7.68 over the past five years, it stands slightly below the highs for the stock.
Further, the stock’s PE compares favorably with the Finance sector’s trailing twelve months PE ratio, which stands at 16.01. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that AGNC Investment’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.
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, AGNC Investment’s P/CF ratio of 3.70 is lower than the industry average of 5.40, which indicates that the stock is somewhat overvalued in this respect.
Broad Value Outlook
In aggregate, AGNC 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 AGNC Investment a solid choice for value investors.
What About the Stock Overall?
While AGNC 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 AGNC 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 pretty encouraging. The current quarter has seen two estimates go higher in the past sixty days compared to no downward revisions, while the full year estimate has seen two upward and one downward revision in the same time period.
Notably, this has had a positive impact on the consensus estimate, as the current quarter consensus estimate has risen by 6.7% in the past two months, while the full year estimate has inched higher by 4.2%.
Thanks to this bullish trend, the stock has a Zacks Rank #2 (Buy), which indicates why we are looking for outperformance from the company in the near term.
AGNC Investment is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, the company has a sluggish industry rank (Bottom 30% out of over 250 Zacks industries), which makes it hard to get too excited about this company overall. In fact, over the past two years, the broader industry has clearly underperformed the market, as you can see below:
So, value investors might want to wait for the broader factors 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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