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 Web.com Group, Inc. (WEB - 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, Web.com has a trailing twelve months PE ratio of 10.6, 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 20.7. While Web.com’s current PE level puts it above its midpoint of 9.9 over the past five years, the current level stands well below the highs for the stock, suggesting that it could be a great entry point.
Further, the stock’s PE compares favorably with the Zacks Computer & Technology sector’s trailing twelve months PE ratio, which stands at 22.6. At the very least, this indicates that the stock is relatively undervalued 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, Web.com has a P/S ratio of about 1.5. This is much lower than the S&P 500 average, which comes in at 3.4 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Web.com currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Web.com 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 Web.com is just 5.3, a level that is far lower than the industry average of 18.6. Clearly, WEB is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Web.com 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 F. This gives WEB a Zacks VGM score — or its overarching fundamental grade — of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been somewhat encouraging. The current quarter has seen four estimates go higher in the past thirty days compared to one downward revision, while the full year estimate has seen three upward and two downward revisions in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has risen by 1.4% in the past month, while the full year estimate has increased 1.7%. 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.
Web.com is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 43% of more than 250 industries, which indicates that broader factors are favorable for the company. Further, over the past year, the 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.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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