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 HCA Healthcare, Inc. (HCA - 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, HCA Healthcare has a trailing twelve months PE ratio of 16.9, 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 20.2. If we focus on the long-term PE trend, HCA Healthcare’s current PE level puts it above its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 21.6. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that HCA Healthcare has a forward PE ratio (price relative to this year’s earnings) of just 14.4, so it is fair to say that a slightly more value-oriented path may be ahead for HCA Healthcare 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, HCA Healthcare has a P/S ratio of about 1.1. This is lower than the S&P 500 average, which comes in at 3.5 right now. However, as we can see in the chart below, this is almost in-line with the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, HCA Healthcare 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 HCA Healthcare a solid choice for value investors.
What About the Stock Overall?
Though HCA Healthcare 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 D. This gives HCA 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 quarter has seen one estimate go higher in the past sixty days compared to one lower, while the full year estimate has seen two upward and zero downward revisions in the same time period.
As a result, the current quarter consensus estimate has inched up by 0.5% in the past two months, while the full year estimate has increased nearly 1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This somewhat favorable trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.
HCA Healthcare is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Boasting a good industry rank (among the top 35%) and a Zacks Rank of 2, the company deserves attention right now. In fact, over the past year, 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.
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