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 Gilead Sciences, Inc. (GILD - 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, Gilead Sciences has a trailing twelve months PE ratio of 8.3, 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, Gilead Sciences’ current PE level puts it below its midpoint of 12.6 over the past five years. Moreover, the current level stands significantly lower than the highs for the stock, indicating that it could be a solid 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 point out that Gilead Sciences has a forward PE ratio (price relative to this year’s earnings) of 9.4, so it is fair to expect an increase in the company’s share price in the near future.
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, Gilead Sciences has a P/S ratio of about 3.8. This is a bit higher than the S&P 500 average, which comes in at 3.2 right now. This indicates that the stock is a bit overvalued from this aspect.
Broad Value Outlook
In aggregate, Gilead Sciences currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Gilead Sciences a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio (another great indicator of value) for Gilead Sciences is just 6.5, a level that is far lower than the industry average of 23.5. Clearly, GILD is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Gilead Sciences 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 A. This gives GILD a Zacks VGM score — or its overarching fundamental grade — of B. (You can read more about the Zacks Style Scores here >>)
Notably, the company’s recent earnings estimates have been quite encouraging. The current quarter and full year have seen three and five estimates go higher in the past sixty days, respectively. The company did not witness any downward revisions in the said time frame.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has risen by 3.9% in the past two months, while the full year estimate has increased 6.9%. 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.
Gilead Sciences 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.
4 Promising Stock Picks to Keep an Eye On
With news stories about computer hacking and identity theft becoming increasingly commonplace, the cybersecurity industry looks like a promising investment opportunity. But which stocks should you buy? Zacks just released Cybersecurity: An Investor’s Guide to Locking Down Profits to help answer this question.
This new Special Report gives you the information you need to make well-informed investment choices in this space. More importantly, it also highlights 4 cybersecurity picks with strong profit potential.
Get the new Investing Guide now>>