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 United Natural Foods, Inc. (UNFI - 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, United Natural, popularly known as UNFI has a trailing twelve months PE ratio of 4.9, 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 17.7. If we focus on the long-term PE trend, UNFI’s current PE level puts it at the lower end of range over the past five years, with the number having plunged rapidly over the past year.
Further, the stock’s PE also compares favorably with the Zacks Food - Miscellaneous industry’s trailing twelve months PE ratio, which stands at 16.6. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that United Natural has a forward PE ratio (price relative to this year’s earnings) of 8.8, which is tad higher than the current level. So, it is fair to expect an increase in the company’s share price in the near term.
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, UNFI has a P/S ratio of about 0.1. This is much lower than the S&P 500 average, which comes in at 3.2x 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.
If anything, UNFI is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, UNFI currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes UNFI a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for UNFI is just 1.2, a level that is far lower than the industry average of 5.1. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, UNFI is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though UNFI 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 F and a Momentum Score of C. This gives UNFI a Zacks VGM score — or its overarching fundamental grade — of D. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current fiscal has seen one estimate go higher in the past sixty days with no lower, while the next fiscal’s estimate has seen three down in the same time period, with no movement in the opposite direction.
This has had just a small impact on the consensus estimate though as the current fiscal consensus estimate has rose 4.2% in the past two months, while the next fiscal’s estimate has lowered 21.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
United Natural Foods, Inc. Price and Consensus
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
UNFI is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among Bottom 39% of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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