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 EDP - Energias de Portugal, S.A. 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, EDP - Energias de Portugal has a trailing twelve months PE ratio of 13.19. This level compares considerably favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.13.
If we focus on the long-term trend of the stock the current level puts EDP - Energias de Portugal’s current PE near highs over the observed period. This suggests that the stock is overvalued compared to its own historical levels.
Further, the stock’s PE also compares favorably with the Zacks classified Utility – Electric Power industry’s trailing twelve months PE ratio, which stands at 17.06. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that EDP - Energias de Portugal has a forward PE ratio (price relative to this year’s earnings) of 12.06 – that is lower than the current level. So, it is fair to say that a slightly more value-oriented path may be ahead for EDP - Energias de Portugal stock in the near term too.
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, EDP - Energias de Portugal has a P/S ratio of about 0.81. This is considerably lower than the Zacks categorized Utility – Electric Power industry average, which comes in at 1.40 right now. Notably, the stock has always traded below the industry average P/S level, over the observed period.
EDPFY is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, EDP - Energias de Portugal 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 EDP - Energias de Portugal a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 0.91, lower than the industry average of 1.74. Additionally, its P/CF ratio (another great indicator of value) comes in at 3.87, which is far better than the industry average of 8.37. Clearly, EDPFY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though EDP - Energias de Portugal 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 ‘D’. This gives EDPFY 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 earnings estimates have been trending upwards lately. The current year has seen one estimate go higher in the past thirty days compared to one lower, while the next year estimate has seen one upward revision and no downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate as the current year estimate has increased 9.2% over the past month, while the next year estimate has moved up 9.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Energias de Portugal Price and Consensus
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #1 (Strong Buy) indicates robust fundamentals and expectations of outperformance in the near term.
EDP - Energias de Portugal is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (among the Top 42% out of 265 industries) and a principal Zacks Rank, the company deserves attention right now. 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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