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 Gannett Co., Inc. (GCI - 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, Gannett Co. has a trailing twelve months PE ratio of 9.75. This level compares 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 Gannett Co.’s current PE among its highs over the observed period. This suggests that the stock is overvalued compared to its own historical levels.
Further, the stock’s PE compares favorably with its industry’s trailing twelve months PE ratio, which stands at 20.41. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Gannett Co. has a forward PE ratio (price relative to this year’s earnings) of 9.02, which lower than the current level. So, it is fair to say that a slightly more value-oriented path may be ahead for Gannett Co. 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, Gannett Co. has a P/S ratio of about 0.31. This is lower than the industry average, which comes in at 0.76x right now.
If anything, GCI is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Gannett Co. currently has a Value Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes Gannett Co. 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 1.11, lower than the industry average of 1.59. Additionally, its P/CF ratio (another great indicator of value) comes in at 3.80, which is better than the industry average of 4.22. Clearly, GCI is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Gannett Co. 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 A and a Momentum score of F. This gives GCI 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, Gannett Co. seems to have pretty striking prospects.
Meanwhile, the company’s earnings estimates have been trending downward lately. The current quarter has seen one estimate go higher in the past thirty days compared to two lower, while the full year estimate has seen one upward revision and two downward revisions in the same time period.
This has had a huge impact on the consensus estimate as the current quarter consensus estimate has decreased 40.9% over the past month, while the full year estimate has declined 5.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Gannett Co., Inc. Price and Consensus
This 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.
Gannett Co. is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 24% out of more than 250 industries) further supports the growth potential of the stock.
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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