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 GNC Holdings, Inc. (GNC - 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, GNC Holdings has a trailing twelve months PE ratio of 3.3, 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 20.5. If we focus on the long-term PE trend, GNC Holdings’ current PE level puts it close to the lows over the past five years, indicating that it could be a great time to enter into the stock.
Further, the stock’s PE also compares favorably with the Zacks Retail - Wholesale sector’s trailing twelve months PE ratio, which stands at 31.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that GNC Holdings has a forward PE ratio (price relative to this year’s earnings) of 8.9, so we might say that the forward earnings estimates indicate that the company’s share price will likely appreciate in the near future
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, GNC Holdings has a P/S ratio of about 0.1. This is much lower than the S&P 500 average, which comes in at 3.4 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, GNC Holdings currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes GNC Holdings a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the P/CF ratio (another great indicator of value) for GNC Holdings is just 1.7, a level that is far lower than the industry average of 7.7. Clearly, GNC is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though GNC Holdings 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 of B and a Momentum Score of F. This gives GNC a Zacks VGM score — or its overarching fundamental grade — of F. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been discouraging. The current quarter and full year have seen one and three downward estimate revisions, respectively in the past sixty days compared to no upward revisions.
This has had a negative impact on the consensus estimate, as the current quarter consensus estimate has slumped 64.1% in the past two months, while the full year estimate has declined 49.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
In light of these bearish trends, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
GNC Holdings is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3, the stock belongs to an industry which is ranked among the Top 29% out of more than 250 Zacks industries, which indicates that broader factors are favorable for the company.
So, value investors might want to wait for estimates to turn around in this name first, but once that happens, this stock could be a compelling pick.
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