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 Sportsman's Warehouse Holdings, Inc. (SPWH - 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, Sportsman's Warehouse has a trailing twelve months PE ratio of 7.8, 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 20.3. If we focus on the long-term PE trend, Sportsman's Warehouse’s current PE level puts it below its midpoint of 15.3 over the past few years. Moreover, the current level stands well below the highs for the stock, suggesting that it could be a great entry point.
Further, the stock’s PE compares favorably with the Zacks Retail-Wholesale sector’s trailing twelve months PE ratio, which stands at 28. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Sportsman's Warehouse’s 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.
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, Sportsman's Warehouse has a P/S ratio of about 0.2. This is much lower than the S&P 500 average, which comes in at 3.2 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, SPWH 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, Sportsman's Warehouse currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Sportsman's Warehouse a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Sportsman's Warehouse is just 0.7, a level that is lower than the industry average of 1.4. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 4.2, which is far better than the industry average of nearly 7. Clearly, SPWH is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Sportsman's Warehouse 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 B and a Momentum Score of D. This gives SPWH a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been nearly unchanged. The current quarter consensus estimate has been stable in the past two months, while the full year estimate has inched higher by 1.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Given these 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.
Sportsman's Warehouse is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, this Zacks Rank #3 company enjoys a solid Zacks Industry Rank (among Top 37% of more than 250 industries). However, owing to a challenging retail landscape and evolving consumer preferences, the industry has underperformed the broader market over the past two years. This is visible from the chart below:
So, value investors might want to wait for the broader industry factors to turn favorable, but once that happens, this stock could be a compelling pick.
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