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 Air France-KLM SA (AFLYY - 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, Air France-KLM SA has a trailing twelve months PE ratio of 13.8, 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 compares in at about 21.9. If we focus on the stock’s long-term PE trend, the current level puts Air France-KLM SA’s current PE ratio way above its midpoint (which is 5.9) over the past two years.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 19.9. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Air France-KLM SA has a forward PE ratio (price relative to this year’s earnings) of just 6.2, so it is fair to say that a slightly more value-oriented path may be ahead for Air France-KLM SA’s stock in the near term too.
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, Air France-KLM SA has a P/S ratio of about 0.2. This is significantly lower than the S&P 500 average, which comes in at 3.5 right now. Also, as we can see in the chart below, this is very close to the highs for this stock in particular over the past couple of years.
If anything, Air France-KLM SA is towards the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Air France-KLM SA currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes AFLYY a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Air France-KLM SA is just 0.3, a level that is noticeably lower than the industry average of 1.7. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 2.2, which is slightly better than the industry average of 5.9. Clearly, AFLYY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Air France-KLM SA 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 grade of C and a Momentum score of B. This gives AFLYY a 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 encouraging. The full-year 2017 has seen two estimates go higher in the past sixty days, compared to none lower, while the full-year 2018 estimate has seen a similar trend in the same time period.
This has had a favorable impact on the consensus estimate, as the full-year 2017 consensus estimate has climbed nearly 14.2% in the past two months, while the full-year 2018 estimate has risen about 1.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This favorable trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Air France-KLM SA is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (top 28% out of more than 250 industries) and a strong Zacks Rank, the company deserves attention right now. However, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
Despite positive estimate revision activity, investors should wait for industry trend to turn around first. When it does, this stock could be a compelling value pick.
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