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 CONE Midstream Partners LP (CNNX - 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, CONE Midstream has a trailing twelve months PE ratio of 9.99, 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 21.12. If we focus on the rceent PE trend, CONE Midstream’s current PE level puts it below its midpoint of 11.43 over the past few years. Moreover, the current level stands well below the highs for the stock, suggesting that it could be a good entry point.
Further, the stock’s PE compares favorably with the Zacks Oil-Energy sector’s trailing twelve months PE ratio, which stands at 28.47. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that CONE Midstream’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.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management, and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, CONE Midstream’s P/CF ratio of 7.96 is lower than the Zacks Oil/Gas Production Pipeline industry average of 8.76, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, CONE Midstream currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes CONE Midstream a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for CONE Midstream is just 0.90, a level that is far lower than the industry average of 2.23. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, CNNX is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though CONE Midstream 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 D. This gives CNNX 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 slightly encouraging. The current quarter has seen one upward and downward estimate revision in the past thirty days, while the full year estimate has seen two upward and no downward revision in the same time period.
This has had just a somewhat positive impact on the consensus estimate, as the full year consensus estimate has risen by 0.6% over the past month, while 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:
Given these trends, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
CONE Midstream is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish Zacks Industry Rank (among Bottom 33% of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader industry factors to turn favorable first, but once that happens, this stock could be a compelling pick.
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