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 BASF SE (BASFY - 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, BASF SE has a trailing twelve months PE ratio of 17.4, 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 compares in at about 20.8. If we focus on the stock’s long-term PE trend, the current level puts BASF SE’s current PE ratio above its midpoint over the past five years, with the number having risen rapidly over the past few months.
Further, the stock’s PE also compares favorably with its sector’s trailing twelve months PE ratio, which stands at 19. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that BASF SE has a forward PE ratio (price relative to this year’s earnings) of 15, so it is fair to say that a slightly more value-oriented path may be ahead for BASF SE stock in the near term too.
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, BASF SE has a P/S ratio of about 1.5. This is lower than the S&P 500 average, which comes in at 3.2 right now.
BASFY is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, BASF SE currently has a Zacks Value Style Score of ‘A’, putting it into the top 20% of all stocks we cover from this look. This makes BASF SE a solid choice for value investors.
For example, the PEG ratio for BASFY is 1.8, 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 10.1, which is better than the industry average of 11.6. Clearly, BASFY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though BASF SE 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 ‘A’. This gives BASFY 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 discouraging. The current year has seen one estimate going higher in the past thirty days compared to none lower, while the next year estimate has also seen one upward and one downward movement in the same time period.
As a result, the current year consensus estimate has dropped by 1.4% in the past month and the next year estimate dipped 1.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
BASF SE Price and Consensus
This negative 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.
BASF SE 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 23% out of more than 250 industries) further strengthens its growth potential. In fact, over the past one year, the industry to which it belongs has clearly outperformed the broader market, as you can see below:
However, given the negative trend in earnings estimate revisions, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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