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 Vale S.A. (VALE - 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, Vale S.A. has a trailing twelve months PE ratio of 9.6, 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 20.5. If we focus on the stock’s long-term PE trend, the current level puts Vale S.A.’s current PE ratio somewhat above its midpoint (which is 6.7) over the past five years.
Further, the stock’s PE also compares favorably with the industry’s trailing twelve months PE ratio, which stands at 9.7. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Vale S.A. has a forward PE ratio (price relative to this year’s earnings) of 8.9, so it is fair to say that a slightly more value-oriented path may be ahead for Vale S.A.’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, Vale S.A. has a P/S ratio of about 1.9. This is substantially lower than the S&P 500 average, which comes in at 3.3 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Vale S.A. currently has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes VALE a solid choice for value investors.
What About the Stock Overall?
Though Vale S.A. 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 D and a Momentum score of D. This gives VALE a VGM score—or its overarching fundamental grade—of D. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen one estimate go higher in the past sixty days, compared to none lower, while the full year estimate has seen four upward and two downward revisions in the same time period.
This has had a favorable impact on the consensus estimate, as the current quarter consensus estimate has skyrocketed nearly 141.2% in the past two months, while the full year estimate has increased nearly 23.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
The stock holds a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term. However, Vale S.A. is enjoying bullish analyst sentiment, as indicated by the positive estimate revisions, and this works in the company’s favor.
Vale S.A. 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 46% 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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