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 Trinseo S.A. (TSE - 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, Trinseo has a trailing twelve months PE ratio of 8.8, 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 stands at about 20.1. If we focus on the long-term PE trend, Trinseo’s current PE level puts it below its midpoint over the past three years, with the number having remained stable over the past few months. 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 industry’s trailing twelve months PE ratio, which stands at 15.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Trinseo has a forward PE ratio (price relative to this year’s earnings) of 8.4, so it is fair to say that a slightly more value-oriented path may be ahead for Trinseo 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, Trinseo has a P/S ratio of about 0.7. This is significantly lower than the S&P 500 average, which comes in at 3.2 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
As we can see, the stock is trading at its median value for the time period from a P/S metric. This does not provide us with a conclusive direction as to the relative valuation of the stock in comparison to its historical trend.
Broad Value Outlook
In aggregate, Trinseo 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 Trinseo a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Trinseo is just 0.8, a level that is lower than the industry average of 1.4. 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 6.5, which is far better than the industry average of 9.6. Clearly, TSE is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Trinseo 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 TSE 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 mostly trending higher. The current year has seen three estimates go higher in the past sixty days compared to one lower, while the next year estimate has seen three upward and zero downward revisions in the same time period.
As a result, the current year consensus estimate has risen by 2.5% in the past two months, while the next year estimate has increased 1.5%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Even though Trinseo 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.
Trinseo is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a good industry rank (among the Top 48%), Trinseo looks like a strong value contender. In fact, over the past two years, the industry has clearly outperformed 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.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
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