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 Gray Television, Inc. (GTN - 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, Gray Television has a trailing twelve months PE ratio of 10.2, 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, Gray Television’s 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 its industry’s trailing twelve months PE ratio, which stands at 51.8. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Gray Television has a forward PE ratio (price relative to this year’s earnings) of 5.8, so it is fair to say that a slightly more value-oriented path may be ahead for the 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, Gray Television has a P/S ratio of 1.1. This is lower than the S&P 500 average, which comes in at 3.4 right now.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Gray Television 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 Gray Television a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Gray Television is just 0.9, a level that is lower than the industry average of 1.7. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Gray Television 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 F and a Momentum score of B. This gives GTN a Zacks VGM score—or its overarching fundamental grade—of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current year and next has seen four estimates go higher in the past sixty days compared to one lower.
As a result, the current year consensus estimate has decreased 2% in the past month, while the next year estimate has also fallen 1.6% over the same time frame.
Gray Television, Inc. Price and Consensus
This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Gray Television is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. With a formidable industry rank (among the Top 40%) Gray Television looks like a strong value contender. In fact, over the past one year, its industry has clearly outperformed the broader market, as you can see below:
So, value investors might want to wait for the analysts’ sentiment and estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.
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