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 Westlake Chemical Corporation (WLK - 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, Westlake has a trailing twelve months PE ratio of 20.1, as you can see in the chart below:
This level actually compares somewhat favorably with the market at large, as the PE for the S&P 500 stands at about 20.7. If we focus on the long-term PE trend, Westlake’s current PE level puts it above its midpoint over the past five years, with the number having risen rapidly over the past few months.
However, the stock’s PE compares unfavorably with its industry’s trailing twelve months PE ratio, which stands at 16.4. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that Westlake has a forward PE ratio (price relative to this year’s earnings) of 17.9, so it is fair to say that a more value-oriented path may be ahead for the stock in the near term.
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, WLK has a P/S ratio of about 1.6. This is lower than the S&P 500 average, which comes in at 3.3 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Westlake currently has a Zacks Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Westlake a solid choice for value investors, and some of its other key metrics make this pretty clear too.
What About the Stock Overall?
Though Westlake 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 B. This gives WLK 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 estimate has been encouraging. The current quarter has seen three upward and no downward estimate revisions in the past 60 days, while the current year has seen one upward and downward estimate revision in the same time frame.
As a result, the current quarter consensus estimate has moved up by 10.6% in the past two months, while the current year estimate has inched higher by 4.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Westlake Chemical Corporation Price and Consensus
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
Westlake is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. Further, the stock belongs to an industry which is ranked among the top 43% (out of more than 250 industries), indicating that broader factors are favorable for the company. In fact, over the past six months, its industry has clearly outperformed the broader market, as you can see below:
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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