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 Atlantic Capital Bancshares, Inc. (ACBI - 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, Atlantic Capital Bancshares has a trailing twelve months PE ratio of 21.7, as you can see in the chart below:
However, this level actually compares unfavorably with the market at large, as the PE for the S&P 500 compares in at about 16.9. If we focus on the stock’s long-term PE trend, the current level puts Atlantic Capital Bancshares’ current PE ratio somewhat below its midpoint (which is 30.7) over the past three years.
Further, the stock’s PE also compares unfavorably with the industry’s trailing twelve months PE ratio, which stands at 13.4. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers.
Nonetheless, we should also point out that Atlantic Capital Bancshares has a forward PE ratio (price relative to this year’s earnings) of just 13.8, so it is fair to say that a slightly more value-oriented path may be ahead for Atlantic Capital Bancshares’ stock in the near term too.
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Atlantic Capital Bancshares’ P/CF ratio of 47.4 is substantially higher than the industry average of 14.3, which indicates that the stock is somewhat overvalued in this respect.
Broad Value Outlook
In aggregate, Atlantic Capital Bancshares currently has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes ACBI a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Atlantic Capital Bancshares is just 0.5, a level that is slightly lower than the industry average of 1.2. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, ACBI is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Atlantic Capital Bancshares 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 ACBI a 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 full-year 2019 has seen two estimates go higher in the past sixty days and one lower.
This has had a positive impact on the consensus estimate, as the full-year 2019 consensus estimate has risen about 5.7% in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bullish trend is why the stock boasts a Zacks Rank #1 (Strong Buy) and why we are expecting outperformance from the company in the near term.
Atlantic Capital Bancshares is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its top Zacks Rank also indicates robust growth potential in the near future. However, the company’s prospects might be constrained due to adverse broader factors, as it has a sluggish industry rank (bottom 35% out of more than 250 industries). In fact, over the past one year, the sector has clearly outperformed the broader market, as you can see below:
So, value investors might want to wait for broader factors and industry trends to turn favorable in this name first, but once that happens, this stock could be a compelling pick.
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