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 Scripps Networks Interactive Inc. (SNI - 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, Scripps Networks has a trailing twelve months PE ratio of 15.2, 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 20.1. If we focus on the long-term PE trend, Scripps Networks’ current PE level puts it below its midpoint of 17.7 over the past five years. Moreover, the current level stands below the highs for the stock, suggesting that it could be a solid entry point.
Further, the stock’s PE compares favorably with the Zacks Consumer Discretionary sector’s trailing twelve months PE ratio, which stands at 23.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Scripps Networks’ 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.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Scripps Networks’ P/CF ratio of 6.3 is way lower than the Zacks Broadcasting industry average of 30.9, which indicates that the stock is considerably undervalued in this respect.
Broad Value Outlook
In aggregate, Scripps Networks currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Scripps Networks a solid choice for value investors.
What About the Stock Overall?
Though Scripps Networks 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 Score of C and a Momentum Score of F. This gives SNI 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 quite disappointing. The current quarter and full year have seen one and four estimates go lower in the past sixty days compared to no upward revisions.
This has had a negative impact on the consensus estimate as the current quarter consensus estimate has tumbled 10.1% in the past two months, while the full year estimate has inched lower by 0.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
In light of these bearish trends, the stock has just a Zacks Rank #3 (Hold), which indicates why we are looking for in-line performance from the company in the near term.
Scripps Networks 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 Zacks Industry Rank (Bottom 40%) and a Zacks Rank #3, it is hard to get too excited about this company overall.
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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