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 Allegiant Travel Company (ALGT - 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, Allegiant has a trailing twelve months PE ratio of 16.6, 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 22. Moreover, the current level is below the highs for this stock over the past five years, suggesting it might be a good entry point.
The stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 13.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Allegiant has a forward PE ratio (price relative to this year’s earnings) of 15.1, so it is fair to say that a slightly more value-oriented path may be ahead for Apple 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, Allegiant has a P/S ratio of about 1.7 which is 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 well below the highs for this stock in particular over the past few years.
If anything, ALGT is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Allegiant currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Allegiant a solid choice for value investors.
What About the Stock Overall?
Though Allegiant 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 ALGT 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 encouraging. The year 2017 has seen one upward and two downward estimate revisions in the past 30 days while 2018 has seen three upward estimates revisions and none downward in the same time frame.
Allegiant Travel Company Price and Consensus
As a result, the consensus estimate for 2017 remained stable in the past one month, while estimate for 2018 has inched higher by 2.7%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Allegiant is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. Moreover, a decent industry rank (Top 28% out of more than 250 industries) further supports the growth potential of the stock.
However, with a Zacks Rank #3, it is hard to get too excited about this company overall. So, value investors might want to wait for analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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