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 THL Credit, Inc. (TCRD - 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, THL Credit has a trailing twelve months PE ratio of 7.53, 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 21.49. If we focus on the long-term PE trend, THL Credit’s current PE level puts it below its midpoint of 8.39 over the past five years. Moreover, the current level stands below the highs for the stock, suggesting that it could be a solid entry point.
Further, the stock’s PE compares favorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 16.92. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that THL Credit’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.
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, THL Credit has a P/S ratio of about 3.75. This is a bit higher than the S&P 500 average, which comes in at 3.40 right now.
Broad Value Outlook
In aggregate, THL Credit currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes THL Credit 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 THL Credit is 7.11, a level that is lower than the industry average of 9.56. Clearly, TCRD is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though THL Credit 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 B. This gives TCRD 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 quite encouraging. The current quarter and full year have seen four and five estimates go higher, respectively in the past sixty days compared to no downward revisions. This has had a positive impact on the consensus estimate, as the current quarter consensus estimate has risen by 14.8% in the past two months, while the full year estimate has jumped 8.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
However, this 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.
THL Credit 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 19% 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 around in this name first, but once that happens, this stock could be a compelling pick.
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