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 Jacobs Engineering Group Inc. (JEC - 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, Jacobs Engineering has a trailing twelve months PE ratio of 18.1, as you can see in the chart below:
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 20. If we focus on the stock’s long-term PE trend, the current level puts JEC’s PE ratio above its midpoint over the past five years with the number having risen rapidly over the past few months.
However, the stock’s PE also compares pretty unfavorably with industry’s trailing twelve months PE ratio, which stands at 15.3. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
We should also point out that JEC has a forward PE ratio (price relative to this year’s earnings) of 14.9, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term.
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, Jacobs Engineering has a P/S ratio of about 0.8. This is a bit lower than the S&P 500 average, which comes in at 3.3 right now.
Broad Value Outlook
In aggregate, JEC 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 JEC a good choice for value investors, and some of its other key metrics make this pretty clear too.
What About the Stock Overall?
Though Jacobs Engineering 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 C and a Momentum score of C. This gives JEC a Zacks VGM score—or its overarching fundamental grade—of B. (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 five estimates go higher in the past 30 days and none lower, while the full year estimate has also seen six upward revisions and none downward revisions in the same time frame.
As a result, the current quarter consensus estimate has increased 10.2% in the past two months, while the full year estimate has dropped by about 6.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Jacobs Engineering Group Inc. Price and Consensus
This positive trend signifies bullish analyst sentiment, and its Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term.
JEC is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. With a good industry rank (Top 12% out of more than 265 industries) Jacobs Engineering looks like a strong value contender. However, over the past one year, its industry has clearly 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. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a strong value contender in Jacobs Engineering.
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