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 EQT Midstream Partners, LP (EQM - 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, EQT Midstream Partners has a trailing twelve months PE ratio of 13.16, 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 21.10. If we focus on the long-term PE trend, EQT Midstream Partners’ current PE level puts it below its midpoint of 16.99 over the past five years. In fact, the current level stands closer to the lows for the stock, suggesting that it could be a solid entry point.
Further, the stock’s PE compares favorably with the Zacks Oils - Energy sector’s trailing twelve months PE ratio, which stands at 28.43. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that EQT Midstream Partners has a forward PE ratio (price relative to this year’s earnings) of just 12.25, so it is fair to say that a slightly more value-oriented path may be ahead for EQT Midstream Partners stock in the near term too.
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, EQT Midstream Partners’ P/CF ratio of 8.63 is lower than the Zacks Oil & Gas Production Pipeline industry average of 13.22, which indicates that the stock is quite undervalued in this respect.
Broad Value Outlook
In aggregate, EQT Midstream Partners currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes EQT Midstream Partners a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for EQT Midstream Partners is just 1.02, a level that is lower than the industry average of 2.67. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, EQM is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though EQT Midstream Partners 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 D and a Momentum Score of A. This gives EQM 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 quite encouraging. Both, the current quarter and full year have seen two estimates go higher in the past thirty days compared to one downward revision. This has had just a positive impact on the consensus estimate, as the current quarter consensus estimate has risen by 2.6% in the past month, while the full year estimate has inched higher by 0.7%. 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.
EQT Midstream Partners 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 all Zacks industries, which indicates that broader factors are favorable for the company. Further, over the past two years, the industry has 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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