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 SUPERVALU Inc. (SVU - 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, SUPERVALU has a trailing twelve months PE ratio of 7.45. This level compares considerably favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 19.87.
If we focus on the long-term trend of the stock the current level puts SUPERVALU’s current PE among its lower zone, well below its median for the term (which stands at 10.53x). 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 compares favorably with its industry’s trailing twelve months PE ratio, which stands at 21.09. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
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, SUPERVALU has a P/S ratio of about 0.06. This is much lower than the industry average, which comes in at 1.88x right now. Also, this is in the lower zone for this stock in particular, over the observed term.
This clearly suggests some level of undervalued trading for SVU—at least compared to historical norms.
Broad Value Outlook
In aggregate, SUPERVALU currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes SUPERVALU a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the stock’s P/B ratio (used to compare a stock's market value to its book value) stands at 1.97, lower than the industry average of 2.55. Additionally, its P/CF ratio (another great indicator of value) comes in at 3.87, which is far better than the industry average of 11.84. Clearly, SVU is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though SUPERVALU 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 SVU 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 mixed at best. The current quarter has seen three estimates go higher in the past sixty days compared to one lower, while the full year estimate has seen two upward revisions and two downward revisions in the same time period.
This has had a small impact on the consensus estimate though as the current quarter consensus estimate has remained constant over the past month, while the full year estimate has declined 4.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
SuperValu Inc. Price and Consensus
This somewhat negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
SUPERVALU 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 two years, the industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates 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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