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 Annaly Capital Management, Inc. (NLY - 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, Annaly Capital has a trailing twelve months PE ratio of 10.15, 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, Annaly Capital’s current PE level puts it above its midpoint of 8.19 over the past five years.
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 Annaly Capital’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.
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, Annaly Capital has a P/S ratio of about 3.32. This is a bit lower than the S&P 500 average, which comes in at 3.47 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, Annaly Capital 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 Annaly Capital 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 Annaly Capital is 2.58, a level that is far lower than the industry average of 6.71. Clearly, NLY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Annaly Capital 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 ‘F’ and a Momentum score of ‘B’. This gives NLY 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 somewhat encouraging. The current quarter has seen one estimate go higher in the past sixty days compared to one downward revisions, while the full year estimate has seen one upward and downward revision each, in the same time period.
This has had a positive impact on the consensus estimate, as the current quarter consensus estimate has risen by 3.4% in the past two months, while the full year estimate has inched higher by 2.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
However, this somewhat bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the bullish analyst sentiment indicates that the stock’s prospects in the near term look good.
Annaly Capital 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 30% 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 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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