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 Henkel AG & Co. KGaA (HENKY - 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, Henkel has a trailing twelve months PE ratio of 18.4, 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 20.4. If we focus on the long-term PE trend, Henkel’s current PE level puts it marginally above its midpoint over the past five years.
Further, the stock’s PE also compares slightly favorably with the industry’s trailing twelve months PE ratio, which stands at 18.7. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Henkel has a forward PE ratio (price relative to this year’s earnings) of just 15.7, so it is fair to say that a slightly more value-oriented path may be ahead for Henkel 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, Henkel has a P/S ratio of about 2.3. This is lower than the S&P 500 average, which comes in at 3.4 right now. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.
HENKY is actually in the higher zone of its trading range in the time period per the 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, Henkel 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 Henkel a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Henkel is just 1.9, a level that is lower than the industry average of 2.3. 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 9.8, which is far better than the industry average of 15.4. Clearly, HENKY is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Henkel 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 B and a Momentum score of C. This gives HENKY 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 mostly trending higher. The full year 2017 as well as 2018 has seen one estimate go higher in the past sixty days compared to none lower.
As a result, the 2017 consensus estimate has risen by 2.5% in the past two months, while the 2018 estimate has increased by 2.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Even though Henkel has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance from the company in the near term.
Henkel is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the Top 43%) should boost investor confidence.
However over the past two years, the industry has underperformed the broader market, as you can see below:
Despite the poor past performance of the industry, a good industry rank signals that the stock is likely to benefit from favorable broader factors in the immediate future. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in Henkel.
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