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 Thomas Cook Group plc (TCKGY - 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, Thomas Cook Group has a trailing twelve months PE ratio of 12.8, 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 20.3. If we focus on the stock’s long-term PE trend, the current level puts Thomas Cook Group’s current PE ratio somewhat above its midpoint (which is 8.7) over the past two years.
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 22.2. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Thomas Cook Group has a forward PE ratio (price relative to this year’s earnings) of just 9.9, so it is fair to say that a slightly more value-oriented path may be ahead for Thomas Cook Group’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, Thomas Cook Group has a P/S ratio of about 0.2. This is significantly lower than the S&P 500 average, which comes in at 3.6 right now. Also, as we can see in the chart below, this is marginally below the highs for this stock in particular over the past few years.
If anything, Thomas Cook Group 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, Thomas Cook Group currently has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes TCKGY 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) comes in at 7.4, which is somewhat better than the industry average of 10.2. Clearly, TCKGY is a solid choice on the value front from multiple angles.
The company’s recent earnings estimates have been encouraging. The full-year 2018 has seen one estimate go higher in the past sixty days, compared to none lower, while the full-year 2019 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 2018 consensus estimate has risen about 6.9% in the past two months, while the full-year 2019 estimate has increased 8.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite having a bullish trend, TCKGY sports a Zacks Rank #3 (Hold). This indicates that analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.
Thomas Cook Group is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a decent industry rank (top 48% 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. Nonetheless, over the past one year, the sector has clearly outperformed the broader market, as you can see below:
So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.
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