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 Rush Enterprises, Inc. (RUSHA - 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, Rush Enterprises has a trailing twelve months PE ratio of 18.5, 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 21.6. If we focus on the long-term PE trend, Rush Enterprises’ current PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 29.4. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Rush Enterprises has a forward PE ratio (price relative to this year’s earnings) of just 14.3, so it is fair to say that a slightly more value-oriented path may be ahead for Rush Enterprises 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, Rush Enterprises has a P/S ratio of about 0.4. This is significantly lower than the S&P 500 average, which comes in at 3.5 right now. As we can see in the chart below, this is marginally below the highs for this stock in particular over the past few years.
RUSHA 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, Rush Enterprises 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 Rush Enterprises a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Rush Enterprises is 1.0, a level that is slightly lower than the industry average of 1.2. 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 6.6, which is better than the industry average of 8.2. Clearly, RUSHA is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Rush Enterprises 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 B. This gives RUSHA a Zacks 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 mixed at best. The current quarter has seen no estimates go higher in the past sixty days compared to two lower, while the full year estimate has seen three upward and one downward revision in the same time period.
As a result, the current quarter consensus estimate has fallen by 17.5% in the past two months, while the full year estimate has risen by 8.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term.
Rush Enterprises 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 12%) and a solid Zacks Rank instills investor confidence.
However, it is hard to get too excited about this company overall as 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. So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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