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 Horizon Pharma Public Limited Company (HZNP - 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, Horizon Pharma has a trailing twelve months PE ratio of 7.2. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.4.
If we focus on the long-term trend of the stock the current level puts Horizon Pharma’s current PE below its median over the observed period (which stands at 8.3x). Hence, we could infer that the stock is undervalued in this respect, especially in light of its historical trend. Thus, the present level seems to be a suitable entry point for the stock from a PE perspective.
Further, the stock’s PE compares much favorably with its industry’s trailing twelve months PE ratio, which stands at 38.7. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
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, Horizon Pharma has a P/S ratio of about 1.9. This is lower than the industry average, which comes in at 2.9x right now.
If anything, HZNP 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, Horizon Pharma currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Horizon Pharma an apt choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Horizon Pharma is just 1.3, a level that is lower than the industry average of 2. 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 3.9, which is far better than the industry average of 23.7. Clearly, HZNP is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Horizon Pharma 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 B and a Momentum score of C. This gives HZNP a Zacks VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>).
Meanwhile, the company’s earnings estimates have been mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to two lower, while the full year estimate has seen two upward revisions and no downward revision in the same time period.
This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has moved down 12% over the past two months, while the full year estimate has increased 22.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Horizon Pharma PLC Price and Consensus
This somewhat mixed 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.
Horizon Pharma 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 36% out of more than 250 industries) further supports the growth potential of the stock. In fact, year to date, the industry has clearly outperformed the broader market, as you can see below:
Notably, Horizon has been focused on expanding its orphan drug business. The company has also been quite active on the acquisition front over the past few quarters.
So, despite a Zacks Rank #3, we believe that bullish analyst sentiment for the long-term and favorable industry factors make this value stock a compelling pick.
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