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 Telenor ASA (TELNY - 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, Telenor has a trailing twelve months PE ratio of 17.78, 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 21.97. If we focus on the long-term PE trend, Telenor’s current PE level puts it almost in line with the midpoint over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it could be a great entry point.
Also, the stock’s PE compares stands almost in line with the Zacks Utilities sector’s trailing twelve months PE ratio of 17.52. This indicates that the stock is fairly valued right now, compared to its peers.
We should also point out that Telenor’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, Telenor has a P/S ratio of about 2.27. This is much lower than the S&P 500 average, which comes in at 3.48 right now. This indicates that the stock is undervalued from the P/S aspect.
Broad Value Outlook
In aggregate, Telenor currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Telenor 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 Telenor is 6.72, a level that is lower than the industry average of 7.16. Clearly, TELNY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Telenor 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 A and a Momentum Score of F. This gives TELNY 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 full year consensus estimate has inched lower by 0.8% over the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Nevertheless, the stock sports a Zacks Rank #2 (Buy), which is why we are looking for outperformance from the company in the near term.
Telenor is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, this Zacks Rank #2 company has a sluggish Zacks Industry Rank (among Bottom 29% of more than 250 industries). 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 estimates and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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