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 AB SKF (SKFRY - 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, SKF has a trailing twelve months PE ratio of 15.16. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 19.89.
If we focus on the long-term trend of the stock the current level puts SKF’s current PE near its lows. Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 23.67. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that SKF has a forward PE ratio (price relative to this year’s earnings) of just 14.51, so it is fair to say that a slightly more value-oriented path may be ahead for SKF 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, SKF has a P/S ratio of about 1.04. This is higher than the industry average, which comes in at 0.78x right now.
As we can see, the stock is trading at its median value for the time period from a P/S metric. This does not provide us with a conclusive direction as to the relative valuation of the stock in comparison to its historical trend.
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.
SKF’s PEG ratio stands at just 1.05, compared with the industry average of 1.60. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, SKF currently has a Value Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes SKF a solid choice for value investors, and all the above listed metrics make this pretty clear too.
What About the Stock Overall?
Though SKF 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 ‘B’ and a Momentum score of ‘B’. This gives SKFRY a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)
Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, SKF seems to have pretty striking prospects.
Meanwhile, the company’s earnings estimates have been trending upward lately. The current year has seen one estimate go higher in the past sixty days compared to none lower, while the next year estimate has seen one upward revision and no downward revisions in the same time period.
This has had a small but meaningful impact on the consensus estimate though as the current year consensus estimate has increased 3.1% over the past two months, while the next year estimate has moved up 2.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
AB SKF Price and Consensus
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
SKF is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 33% out of more than 250 industries) and strong Zacks Rank, SKF looks like a strong value contender. In fact, over the past two years, the industry has clearly outperformed the broader market, as you can see below:
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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