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 Flex Ltd. (FLEX - 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, Flex Ltd. has a trailing twelve months PE ratio of 15.9, 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 Flex Ltd.’s current PE level puts it above its midpoint of 12 over the past five years, it stands below the highs for the stock.
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.
We should point out that Flex Ltd. has a forward PE ratio (price relative to this year’s earnings) of 16.6, so it is fair to expect an increase in the company’s share price in the near future.
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, Flex Ltd. has a P/S ratio of about 0.4. This is significantly lower than the S&P 500 average, which comes in at 3.3 right now. This makes the stock undervalued from this aspect too.
Broad Value Outlook
In aggregate, Flex Ltd. currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Flex Ltd. 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 Flex Ltd. is 8.4, a level that is lower than the industry average of 9.8. Clearly, FLEX is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Flex Ltd. 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 FLEX 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 somewhat encouraging. While the current quarter estimates have not witnessed any revisions in the past thirty days, the full year estimate has seen three upward and no downward revisions in the same time frame.
This has had just a slightly positive impact on the consensus estimate, as the full year estimate has inched higher by 1.9% in a month, though the current quarter estimate has remained unchanged. 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.
Flex Ltd. 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 45% of more than 250 industries, which indicates that broader factors are favorable for the company. Further, over the past two years, 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.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>