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 Cambrex Corporation (CBM - 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, Cambrex has a trailing twelve months PE ratio of 17.7, 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, Cambrex’s current PE level puts it below its midpoint of 21.3 over the past five years. Also, 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 Medical sector’s trailing twelve months PE ratio, which stands at 20.5. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Cambrex’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.
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.
Cambrex’s PEG ratio stands at 1.1, compared with the Zacks Medical-Biomedical industry average of 2.8. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Cambrex currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Cambrex a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/S ratio for Cambrex is just 3.3, a level that is far lower than the industry average of 18.3. Additionally, its P/CF ratio (another great indicator of value) comes in at 15.1, which is far better than the industry average of 23.5. Clearly, CBM is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Cambrex 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 F and a Momentum Score of C. This gives CBM a Zacks VGM score — or its overarching fundamental grade — of D. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been slightly encouraging. The current quarter and full year estimates have seen one upward revision each in the past 60 days, compared with no downward revisions.
This has had a positive impact on the consensus estimate, as the current quarter consensus estimate has risen by 2.2% in the past two months, while the full year estimate has inched higher by 2.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
However, this somewhat bullish trend has likely not yet been reflected in the stock, as we have just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance in the near term. Nonetheless, the bullish analyst sentiment indicates that the stock’s prospects in the near term look good.
Cambrex 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 35% of more than 250 industries). However, 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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