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 Johnson Matthey Plc (JMPLY - 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, Johnson Matthey has a trailing twelve months PE ratio of 15.7, 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, Johnson Matthey’s current PE level puts it below its midpoint of 16.3 over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting it could be a superb entry point.
Further, the stock’s PE also compares favorably with the Zacks Basic Materials sector’s trailing twelve months PE ratio, which stands at 17.4. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Johnson Matthey has a forward PE ratio (price relative to this year’s earnings) of just 13.3, so it is fair to say that a slightly more value-oriented path may be ahead for Johnson Matthey 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, Johnson Matthey has a P/S ratio of about 0.5. This is much lower than the S&P 500 average, which comes in at 3.3 right now.
Broad Value Outlook
In aggregate, Johnson Matthey currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Johnson Matthey a solid choice for value investors.
What About the Stock Overall?
Though Johnson Matthey 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 Score and Momentum Score of A each. This gives JMPLY 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 full year estimate has seen one upward and no downward revisions in the past 60 days. This has had just a positive impact on the consensus estimate as the full year estimate has increased 1.5% over the past two months.
Given the bullish trend, the stock sports a Zacks Rank #2 (Buy), which is why we are looking for outperformance from the company in the near term.
Johnson Matthey is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, this Zacks Rank #2 company enjoys a solid industry rank (among top 18% out of more than 250 Zacks industries). In fact, over the past two years, the industry has clearly surpassed the broader market, as you can see below:
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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