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Should Value Investors Buy Arch Coal (ARCH) Stock?

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Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company to watch right now is Arch Coal (ARCH - Free Report) . ARCH is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock holds a P/E ratio of 6.68, while its industry has an average P/E of 9.03. Over the past 52 weeks, ARCH's Forward P/E has been as high as 9.97 and as low as 5.53, with a median of 8.35.

Another valuation metric that we should highlight is ARCH's P/B ratio of 2.36. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. This stock's P/B looks solid versus its industry's average P/B of 4.24. Over the past year, ARCH's P/B has been as high as 3.32 and as low as 2.15, with a median of 2.51.

Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. ARCH has a P/S ratio of 0.66. This compares to its industry's average P/S of 1.42.

These are only a few of the key metrics included in Arch Coal's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, ARCH looks like an impressive value stock at the moment.




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