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 Autoliv, Inc. (ALV - 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, Autoliv has a trailing twelve months PE ratio of 19.2, 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 20.5. While Autoliv’s current PE level puts it above its midpoint of 16.6 over the past five years, it stands below the highs for the stock, suggesting that it could be a solid entry point.
However, the stock’s PE compares unfavorably with the Zacks Auto sector’s trailing twelve months PE ratio, which stands at 12.3. This indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Autoliv’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, Autoliv has a P/S ratio of about 1.1. This is much lower than the S&P 500 average, which comes in at 3.2 right now. This suggests that the stock is undervalued from the P/S aspect as well.
Broad Value Outlook
In aggregate, Autoliv currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Autoliv a solid choice for value investors.
What About the Stock Overall?
Though Autoliv 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 A. This gives ALV 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 recent earnings estimates have been mixed at best. The current quarter has seen one upward estimate revision in the past 30 days compared to two downward revisions, while the full year estimate has seen two upward and one downward revision in the same time period.
This has had a small impact on the consensus estimate, as the current quarter consensus estimate has slipped by 0.7% in the past month, while the full year estimate has inched higher by 0.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Autoliv 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 has a solid Zacks Industry Rank (among Bottom 15% of more than 250 industries), which hints at favorable broader factors. In fact, over the past two years, the industry has clearly outperformed the broader market, as you can see below:
So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.
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